The Bank of England has cut rates to an all new low of 0.25% which is the biggest cut since March 2009. These cuts mean different outcomes depending on your financial status and where your money is and is going. Below are where the cuts will effect, lets hope it doesn’t apply to you!
Mortgages
If you have a fixed rate mortgage you will be unaffected by these cuts. However, if some of your mortgage is on a variable rate then it isn’t necessarily good news.
At this moment in time there are 1.5 million borrowers with mortgages that track the base rate of the banks, who are in the best position possible right now. The Guardian have stated that a homeowner on the average variable mortgage rate of 2.86% and a mortgage of £150,000 will experience a drop in monthly payments by £19.68. Not a massive saving, but over time will really make an impact on your balance and after all, t is better than going up!
Now although this would be good news if all rates were cut, not all lenders have to follow the bank rate at all. Santander have already stated that they will drop down to 4.49% with tracker rates following in suit.
Savers
Now savers are a different story as they have been suffering since the last cut in 2009 and it hasn’t got much better for them. Savers are likely to see even less returns on their finances no matter where they save it.
Moneyfacts have said that there are 375 savings accounts that could end up offering no interest at all to savers if all banks actually follow these cuts. They also said that there are 60 accounts that have variable rates with an average of 0.25% or less and a massive 325 accounts that are closed to new business owners. Although banks and building societies don’t have to follow the rates, why would they not when it saves them money in the long run?
Borrowing
Just because the base rate is cheaper now and has been cut, it does not mean that your overdraft or credit card will be any cheaper. The interest rate for these accounts is separate to the bank base rate and has actually been rising over the previous months.
Most average credit card rates are now at 17.94% when it was only 15.73% in March 2009. The same figures are shown to rise for overdraft rates and it only looks likely to rise before dropping any time soon. Although we may only see a couple of banks following the 0.25% decrease there will be an increase in competition on the market for all banks and borrowers to get the best deal they possibly can.
Pensions
The reduced rate could mean in less chance of a pensioner getting an annuity. An annuity is the ability to get a regular income from their pension pot every month from what they have accumulated over their life and now it is in jeopardy. The rate is now lower than 13 years ago and doesn’t look like its improving any time soon.
At the same time workplace pensions are varied across the board from 5% to 40% so it really depends who are you with as to if it effects you or not.
House Prices
The cuts can help push house prices up as the low mortgage rates could increase mortgage lenders. However there has already been a fall in bond yields and the rate of the 10-year-fixed-rate mortgage has already decreased. This means that lenders have already started to up their margins on tracker rates and are charging more on top of the base rate than ever before.
This all leads to lower monthly payments for anyone who is lucky enough to actually raise a deposit but doesn’t actually mean that there is a flood of money into housing market.