Posted on 4 August 2016
The Bank of England has reduced the base rate to 0.25%, the first cut in rates since 2009. What does it mean for borrowers?
Speaking after the announcement Mark Carney, the governor of the Bank of England said that the cut meant that banks “have no excuse” not to pass on the rate cut to their customers. Santander and Barclays have already passed on the saving to their tracker clients, and given the strength of Mr Carney’s comments we would expect lenders’ standard variable rates (SVR) to come down as well, and Coventry Building Society are already first out of the starting gate.
But are we going to see widespread reductions in mortgage rates? The Term Funding Scheme also announced by the bank is designed to ensure that lenders do pass on the lower rates to mortgage customers by borrowing from the central bank at a rate very close to 0.25%.
Currently, there is very little margin for many lenders, and with rates already as low as 1.33% on a two year fixed, or 1.99% on a five year fixed rate, the question everyone has been asking since Brexit is still, how low can they go? The cost of lending for a bank has had very little to do with the base rate, with lenders either using funds derived from savings products, or monies bought in from the wholesale markets (swap rates). So by offering lenders the use of funds at a rate of almost 0.25% the Bank of England is encouraging lenders to offer lower mortgage rates.
Of course if you are on a fixed rate then your payments are not changing. What this does mean however, is that for clients coming off longer term fixed rate in the next six months, there is a good chance that you could move to a much lower rate.
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