The Bank of England has cut its base rate for the first time since 2009 to a record low of 0.25%. So is this good or bad news for you?
Yesterday’s decision to cut the base rate is a reaction to the uncertainty surrounding the post-Brexit British economy. But as with all base rate cuts, there will be winners and losers.
Base rate winners and losers
Borrowers are likely to be better off, as lenders should offer loans and mortgages at lower rates. For savers, it could mean further drops to already woeful rates on savings.
Lower mortgage rates should follow, and those with tracker mortgages will be pleased about the base rate cut. Those looking for a mortgage will find trackers more appealing.
Many tracker rates come with no early repayment charges and so a tracking rate potentially gives the best of all worlds – cheap payments now, the ability to review and the opportunity to move to a fixed rate when, or if, rates start to increase.
Fixed-rate mortgages have also been popular over the past couple of years because it was generally thought that the base rate would increase, so people wanted to lock in to the low rates on offer.
With a base rate cut and possible lower fixed rates coming on to the market, those who can afford to may want to switch to a better deal. Others, however, will undoubtedly still see the potential long term benefits of fixing their mortgage in what could potentially be an unstable economy.
When it comes to savings, if you’re a cash saver you should consider fixed-rate savings bonds as these typically have higher interest rates. However, you should be be prepared to have to lock away your savings for a fixed period in return.
Alternatively, if you don’t invest in the stock markets already, now might be a good time to think about it. If you have at least six months’ worth of expenditure in savings, you could consider investing in riskier assets. Dividend-paying shares and interest-paying bonds currently offer inflation-beating returns, although remember you could lose money.
Financial decisions
As with any big financial decision, consider taking professional advice from a financial adviser first.
So tell us, what do you think about the Bank of England’s base rate cut? Will you be making any fixes to your finances as a result of the base rate dropping?
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