Bank of England cuts Base Rate to 0.25%

by Sam Murphy, Managing Director of Mortgage Medics.Sam Murphy - MD of Mortgage Medics

Here’s what you need to know about this morning’s Bank of England rate cut announcement.


What’s happened?

The Bank of England has cut the Base Rate (also known as the official bank rate) by 0.50% from 0.75% to 0.25%.  The official bank rate is the interest rate that the Bank of England charges Banks for secured overnight lending. It is the British Government’s key interest rate for enacting monetary policy.


Why has this happened?

The Bank said it expected UK economic activity to “weaken materially” over the coming months as a result of the Coronavirus outbreak so it is attempting to shore up.  The Bank has also said it will free up billions of pounds of extra lending power to help banks support businesses.


I have a mortgage already, does this mean my payments will go down?

If you have a tracker mortgage then your payments will probably go down from next month – your lender will write to you if this is the case.  However, some tracker products have a ‘floor’ – a rate which it will not track below, so check your paperwork.

If you have a discounted rate mortgage then whether your payments go down will depend on whether the lender reduces its standard variable rate.  Whether you have a tracker or discounted mortgage, your lender will write to you with confirmation of any changes.

If you have a fixed rate mortgage your payments will not change until you reach the end of the fixed rate period.  Check your annual statement or original mortgage offer if you’re unsure when this is.  If it’s soon it may be worth seeking advice as to your options.


I’m in the process of getting a new mortgage, can I get a better deal now?

If you have applied for a tracker product then the rate you pay when the mortgage starts should now be 0.50% lower, but as above, check your paperwork regarding any ‘floor’ the product might have.

If you’ve applied for a fixed rate then the Bank of England Rate cut is likely to have no immediate impact.  The Base Rate is a little like the price of oil, it can take time for any cost in borrowing to filter down to the pumps, or in this case to the mortgage products lenders put to market.  There are also many other factors that affect the cost of mortgage products, and fixed rates were already at a historic low, so it may well be that we see only minimal changes to the cost of new fixed rate mortgages, but time will tell.

At Mortgage Medics, we’ll be reviewing available products for all our clients who we’re currently arranging a mortgage for and letting them know if anything better is available as a result of the rate cut.


Should I switch to a tracker?

Tracker mortgages can go up as well as down and given that the reason for this rate cut is hopefully temporary, it may well be that the Base Rate goes back up again in the not too distant future.  If your preference was previously a fixed rate, beware of abandoning the security a fixed rate offers, especially if you have an existing mortgage with early repayment charges (ERC) applicable for changing product or redeeming early.


I want to talk to someone about my options

Our team of independent, whole of market advisers are ready to help.  If you already have an adviser send them an email and they’ll come back to you ASAP.  If you don’t have a named contact as yet then feel free get in touch.