March 11th, 2020
On 10 March 2020, during a special meeting of the Bank of England’s Monetary Policy Committee (MPC), the Bank of England had voted to reduce the Bank Rate by 50 basis points down from 0.75% to 0.25% – this is the steepest rate cut since the financial crisis in 2008 – to counter the “economic shock” resulting from the coronavirus outbreak.
The Bank of England base rate is the UK’s most influential interest rate and its official borrowing rate. The Bank’s base rate – officially called the bank rate – determines what it pays to Britain’s banks when they hold money with it, it therefore impacts all other interest rates.
In turn, this can affect how much those banks pay savers or charge borrowers, be they taking out credit cards, personal loans or mortgages. When the rate is low, it costs you less to borrow money, but means you earn less on your savings.
How does this affect mortgages?
A number of major high-street banks have announced support for customers affected by Covid-19, including mortgage payment holidays. Banks including Lloyds, NatWest and Royal Bank of Scotland announced that they would offer repayment holidays for mortgage customers affected by coronavirus. Banks can also offer temporary credit limit increases and fees waived on missed payments.
Andrew Montlake, director of mortgage broker Coreco, said: ‘This takes things to a whole new level. Borrowers on a tracker rate will see an immediate benefit but savers will inevitably feel the squeeze.’
Lloyds Banking Group announced those on mortgages which track the bank rate or are on a reversionary rate will see a reduction of 0.5 % by 1 April.
Mortgage rates are currently at near-historic lows, especially on deals where homeowners lock themselves in for 10 years.
Today’s decision is likely to mean that anybody on a tracker mortgage will see an immediate and significant cut in their mortgage costs.
Those currently on fixed-rate mortgages will obviously not see an effect until they come to remortgage, but when they do the rates they are paying could fall, if the base rate is not adjusted again before then.