Martin Lewis savings and mortgages warning after Bank of England base rate cut | Personal Finance | Finance
A warning from Martin Lewis after a Bank of England base rate cut still applies this week following the decision on Thursday to cut interest rates again.
On Thursday the Bank of England cut the base rate by 0.25 percentage points to 4%. This base rate has a knock-on effect on the whole of the UK’s financial system, affecting mortgage rates, savings rates and effectively moving money in and out of people’s pockets as a way to manage inflation.
It’s the latest in a series of interest rate cuts by the central bank which has gradually seen interest rates fall. Last November, the Bank of England cut interest rates from 5% to 4.75% and at that time, Martin Lewis gave his response to the BoE base rate cut and what it meant for people with mortgages and/or with savings in the bank, all of which still applies this week in the wake of another cut to rates.
It’s good news for anyone with a tracker mortgage, or who is about to remortgage, because rates are getting slightly cheaper, but less good news for savings, as many variable accounts will cut the amount of interest they offer following the base rate cut, meaning you’ll be paid less interest.
Martin, who is this week taking a sabattical from work, said at the time of the November base rate cut: “Mortgages: Tracker rates will get cheaper by roughly £15 per month per £100,000 (variable and discount rates should drop too but don’t have to go by [the] same amount).
“Your fixed rate mortgage will not change. Though the rate you can fix at may get cheaper (although as they’re based on predictions of future interest rate some of this cut is already baked in).
“Savings: Easy access rates are usually variable, so both cash ISAs and normal savings, will likely drop by around 0.25% points, though as it’s competitive at the top, some of the best may leave it a little later to drop.
“Your fixed rate savings will not change.”
Similar to with mortgages, Martin advised that some of the cut is already baked into the current rates too, as they are partly based on predictions of future interest rates, so the drop may not be instant or affect everyone.
Around 629,000 outstanding homeowner mortgages are trackers, which follow the movements of the base rate, while 693,000 are SVR deals.
Borrowers end up on an SVR after their initial mortgage deal ends.
Four-fifths of outstanding homeowner mortgages, totalling 6,882,000, are fixed-rate deals.
Homeowners on fixed-rate deals will not see any immediate change in their payments.
Laith Khalaf, head of investment analysis at investment platform AJ Bell, told Martin Lewis’ MSE on Thursday, August 8: “It might seem odd for the Bank of England to be cutting interest rates at the same time that inflation is pulling away from the 2% target.
“However, the Bank’s actions are based not on the current inflation rate, which tells us about price rises over the last 12 months, but rather on future inflation, forecast over the next three years. Importantly, the Bank of England’s previous forecasts show inflation rising over the course of this year before falling back, so prices are currently evolving broadly in line with what the Bank has been expecting.”
