A simples guide

Could the interest rate cut impact your mortgage or savings?

With the Bank of England interest rate at a record low, how could your savings account or mortgage be affected?


What The Bank of England Interest Rate Cut could Mean to you?

The effects of the EU referendum vote held at the end of June are already being felt across the UK. One consequence has been the reaction of the Bank of England to cut interest rates from 0.5% to 0.25% at its meeting on the 4th August. In the first move of its kind since 2009, this too will have implications, especially for savers and mortgage-holders.

Piggy bank and house

The good…

It’s good news if you’re a mortgage holder, especially if you’re lucky enough to be one of the estimated 1.5 million people on a Bank of England tracker mortgage, because you’ll see a reduction in your monthly payment straightaway (depending on T&C’s of course). Someone with a £200,000 loan on a 25-year repayment mortgage should see their monthly mortgage payment fall by £24.16, while those on an interest-only mortgage will see a reduction of £41.66. 1  

Another three million variable rate mortgage holders could see a benefit too – although these rates move at the lender’s discretion. What is pretty clear is that the products offered by lenders will change, so it’s worth checking in from time to time at comparethemarket.com to see if there’s a better mortgage out there for you. Even if you’re not on a tracker or variable rate mortgage, depending on the terms of your mortgage, some providers may come up with better rates or incentives in their efforts to persuade you to move.

Money and papers

…the bad…

Unfortunately, the news isn’t so good for savers. The interest rate cut means that deposit rates, already at very low levels, could fall further - which means it’s likely you’ll see a smaller return on your nest egg. This, coming just after 13 best-buy saving products were taken off the market in July, according to Moneyfacts, will be discouraging news to many. Santander, Lloyds and TSB all cut their rates even before the rate decision was made - So review your existing savings and make sure you’re earning the best rates available. 

ISAs haven’t escaped the fallout either. The highest rate there now comes from Ulster Bank.

…and the ugly

While this is certainly unwelcome news for those trying to save, the outlook isn’t promising either. When it came to the rate change decision, policymakers at the Monetary Policy Committee (MPC) voted unanimously on the decision, which could be a signal that further cuts, perhaps even taking the rate to 0%, could be on the way in the coming months. Indeed, minutes of the meeting, held on the 4th August, showed that some members were in favour of reducing Bank Rate further. There is a potential that the banks could be charging negative rates to those with money on deposit – effectively, this means the bank will charge you interest for looking after your money. The Royal Bank of Scotland is already charging a few business customers.

Meanwhile, Switzerland, Denmark and Sweden are all already experiencing negative bank interest rates. Alternative Bank Schweiz (ABS) was the first bank to pass on negative interest rates to customers in late 2015. Banks here may be more reluctant to do this and instead opt for account fees to cover their costs.

What is for sure, is that both the savings and mortgage markets will see a lot of change over the coming months, so if you’re looking for the best deals, it’s a good idea to keep an eye on comparethemarket.com.


Looking for a Quote?

Compare mortgages in seconds and start saving

Get a quote