What the Base rate cuts mean for your mortgage

In recent weeks, the government and Bank of England have brought in a raft of measures to help support the UK economy during the coronavirus pandemic.

One of the steps taken has been to reduce the Bank of England Base rate to an all-time record low. The rate was cut twice in a fortnight, from 0.75% to 0.1% and now sits at its lowest level since the Bank of England was established in 1694.

A cut in interest rates can benefit many borrowers, so here’s what the recent Base rate cuts mean for your mortgage.

Why has the Base rate been cut?

On the morning of this year’s Budget, the Bank of England announced an emergency Base rate cut, from 0.75% to 0.25%.

Reducing the cost of borrowing was designed to support the economy through the coronavirus pandemic, with former Governor, Mark Carney, saying: “It will have real economic effects, but also acting across the world and in a coordinated manner with the government in a way that makes it clear that we are going to bridge a situation, as opposed to allowing it to be turned into something worse.”

In line with further government measures to tackle the economic impact of the coronavirus, the Bank of England then cut rates again, to 0.1%. This measure came alongside a huge quantitative easing announcement, as the Bank said it would increase its holdings of UK government and corporate bonds by £200 billion to £645 billion.

Source: Bank of England

According to Laura Suter, a personal finance analyst at investment firm AJ Bell, this is the first unscheduled interest rate change from BoE since the global financial crisis 12 years ago. Rates are now lower than they were in the financial crisis.

Fixed-rate mortgage

If your mortgage is on a fixed-rate basis, you will see no change to your monthly repayments.

There is a chance that the cost of new fixed-rate deals may be impacted by the Bank of England rate cut further down the line, and so borrowers looking to remortgage or take out a new mortgage may benefit.

Tracker rate mortgage

According to financial trade body, UK Finance, around one in ten borrowers are on tracker mortgages.

If you are on a tracker interest rate, then you will benefit almost straight away. This is because tracker mortgages go up and down according to external factors – most commonly the Bank of England Base rate.

You should expect the interest rate you pay to reduce by 0.65% as this is the amount the Base rate has been cut.

However, getting a new tracker mortgage has become more difficult in recent weeks. Since the base rate cuts, a number of lenders have withdrawn their tracker range entirely or increased the price of deals.

Lenders including HSBC, Nationwide, Newcastle Building Society and The Mortgage Works have withdrawn their range of tracker mortgages following the cut, while Santander has increased the rate on its tracker mortgages by between 0.2% and 0.3%.

Variable rate mortgage

If your mortgage is linked to your lender’s Standard Variable Rate (SVR) – perhaps you have a discounted rate or your deal has ended and you have reverted to your lender’s SVR – then you may also see your repayments fall.

After the first 0.5% cut in the Base rate, a number of lenders including, Bank of Ireland, Barclays, Halifax, HSBC, Lloyds, Metro Bank, Nationwide, Santander and TSB had announced that they would be passing on the cut to borrowers. Santander and HSBC swiftly moved to confirm they would also pass on the second 0.15% cut onto SVR-linked borrowers.

Virgin Money are another lender who has confirmed they will be reducing their SVR by 0.65%. The reduction will apply across Virgin Money, Clydesdale Bank and Yorkshire Bank SVRs and rates linked to the lenders’ SVRs.

Virgin Money director of mortgages, Hugh Chater, says: “Following the additional cut in base rate announced by the Bank of England, we will now reduce our mortgage SVRs by the full combined 0.65% reduction.

“We remain committed to supporting any of our customers who are affected by Covid-19 and encourage any who are concerned to get in touch with us as early as possible so we can discuss their individual circumstances and the different ways in which we can help them.”

Get in touch

If you want to find out what the Base rate cut means for your mortgage, or you would like to review your mortgage to see if you could benefit from a better deal, please get in touch. Email enquire@london-money.co.uk or call (0207) 808 4120 to find out more.

Please note

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.