The Bank of England has cut interest rates in an emergency response to coronavirus. It could mean record low mortgage rates for residential borrowers and savings for buy-to-let landlords.
The base rate now sits at 0.25%, down from 0.75%. This is the same level it was held at from March 2009 to November 2017 following the financial crash.
The Bank of England stated: “The reduction in bank rate will help to support business and consumer confidence at a difficult time, to bolster the cash flows of businesses and households, and to reduce the cost, and to improve the availability, of finance.”
Lenders are expected to react quickly to the surprise cut, even though mortgage rates are already at record lows. Barclays, Bank of Scotland, Lloyds Bank and Halifax have all announced that the saving will be passed on to mortgage holders from 1 April.
What are the cuts?
Lloyds Bank’s homeowner variable rate will fall to 3.74% and its standard variable rate to 2.25%. Halifax and Bank of Scotland are also reducing their variable-rate mortgages to 3.74% from April.
Barclays announced that all existing tracker and variable rate mortgages will reduce by 0.5% from 1 April. New customers taking out a variable-rate loan can benefit from lower mortgage rates immediately.
Virgin Money customers with mortgages linked to the Bank of England rate will see their mortgage costs from 1 May. However, it has not made an announcement yet on its other variable rate loans.
Many borrowers to benefit
Borrowers on a repayment tracker mortgage will make a decent saving. For example, a £100,000 tracker mortgage that drops from 2% to 1.5% will make a monthly saving of about £25 per month.
Homeowners on fixed-rate mortgages will not be affected unless they are nearing the end of their term and looking to remortgage. Still, first-time buyers and home movers could all benefit from even lower mortgage rates than we have seen recently.
Could we see mortgage rates below 1%?
The industry is expecting to see five-year mortgage rates reduced further. It’s worth noting that the last time interest rates were at this level some lenders were offering two-year fixed rate deals at below 1% with a large deposit. It will be interesting to see what deals become available to borrowers over the next few weeks.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “This is a bold and decisive move from the Bank of England. Swap rates have tumbled in recent days and both the reduction in base rate, plus lower swap rates, will lead to even cheaper mortgage products.”
“We would expect five-year pricing to fall close to its previous record low of 1.29% in 2017 (for a five-year fix from Atom Bank). The big question is, could they fall below 1%?”