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How will the Bank of England’s base rate cut impact you?

Pound coin

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?

Comments
Member

This reduces the woeful return on our savings even further. Our mortgage is fixed so no benefit for our outgoings. I’m most worried about the potential impact on the health of my employers pension scheme.

Member

I would have thought “slashing” the BoE rate to 1/4% is almost irrelevant to savers and borrowers. So no change in my financial habits. I believe a balanced portfolio of stocks, shares, bonds and so on tailored to your attitude to risk is the “best” way to invest money that you will not need to access urgently. It can produce a tax-free return of 3.5-4% in an ISA if you are cautious but it should be regarded as a medium term investment.

Member

Already been notified that my saving accounts is dropping 0.4%, guess I’ll be eating into my savings even more. Bad news for me.

Member
Diane says:
9 August 2016

Is it worth saving any more? Without savers banks can’t invest so take away the savings and you end up with bankrupt banks? You may as well stick it under your mattress so they can’t hold on to it if they go under? If they go ahead (as they now say) with charging for using an account I will simply remove my savings completely and spend on luxuries for myself?

Member

I still think it is safer to keep the money on the bank where it is protected by FSCS up to £75.000. I doubt that your home insurance will cover cash under the mattress when burglered or there is a fire.

Member

I am locked in a fixed mortgage for another year. Hopefully the base rate will stay as low as it is. Since the mortgage dwarfs the savings I hope I gain considerable savings when renewing my mortgage.

Member

I retired from my job 8 years ago just as the boot was put into savers interest rates. Like a lot more people I had saved hard for my retirement. I am livid that since that time I have probably lost £thousands of pounds, and more to the point it makes bloody furious that the interest that savers should be getting is being used by people buying up and selling houses, especially buy to let. Some have streets of houses paid for by the interest from my savings that i worked hard for over 40 odd years. More to the point the job centres hound ordinary people that loose their jobs and sanction them for the most trivial of reasons, however the parisite landlord brigade live off the backs of others. To hell with them, as a saver I want the interest returned to me that I have been robbed of for nearly 9 years. I would put a stop to the greedy grabbing housing business in this country, and make them work for a living like I had too. The answer being if you were lucky enough to be able to afford to buy one house, and very many can’t then you would be forced to live in it unless you needed extra room for a bigger family. It is b******t that there is a housing shortage as I live in Swindon and the local newspaper is ‘chock a block’ with houses for sale. So what is the problem ANSWER = GREED that has been allowed to get out of control by successive governments that urgent action is now needed to regulate and put a stop to the nonsense.

Member
Grumpy Granny says:
10 August 2016

I think is was huge mistake to cut interest rates it sends out the completely wrong message to the rest of the world and I don’t think it will make a blind bit of difference for ordinary people with a mortgage. They are not going to rush out and spend more money it will only be savers who suffer again because it will give the banks the excuse to cut savings rates once more. It won’t be long before they start charging us for saving in their banks.
We need to get on with BREXIT and stop prevaricating and if the EU don’t want a free trade agreement with us, then we don’t want to import their goods The powers that be seem to be forgetting it works both ways. Or is it scared people protecting their own little empires.

Member

As soon as the cost of borrowing was cut, for economic and monetary reasons, banks and building societies had no choice but to follow suit. As soon as lenders lower their loan rates they have to drop their savings rates as well as they live off the margin between the two.

Member
Hammy says:
12 August 2016

I have recently been looking to relocate and have been logging fixed and tracker deals before & after the announcement to reduce base rate. Before the announcement 2 year fixed and trackers were trending at an initial rate ~1.45%. After the announcement the same providers are trending higher ~1.7%. There are no deals at 1.2% !