The Monetary Policy Committee (MPC) has held the latest meeting to review the UK base rate. It has voted to lower the rate from 5.25% to 5%. This is the first time the rate has been cut since March 2020 with a close vote of 5-4.
Why has the UK base rate been lowered to 5%?
Expert predictions were split on whether the rate would remain the same or finally be cut after 4 years. Inflation is now at the Bank of England’s (BoE) target rate of 2%. However, it had been predicted to drop slightly to 1.9% in the year to June. As it remained at 2%, this caused doubt as to whether a cut would be made to interest rates or a more cautious approach would be taken by the BoE.
As well as that, core CPI is still higher than expected at 3.5% rather than the predicted drop to 3.4% in June. Also, services inflation remained unchanged in June at 5.7%. The BoE had previously advised that stability in inflation and further easing of price pressures would be necessary before interest rates could be cut.
During the committee meeting, however, BoE governor Andrew Bailey was one of the members who voted for the 0.25% cut. He has stated that “Inflationary pressures have eased enough that we’ve been able to cut interest rates today”.
How does the current UK base rate affect mortgages?
The cut in interest rates is welcome news for mortgage borrowers. If you have a tracker mortgage, you will see a change in your interest rate in the near future. If you’re paying a standard variable rate, you may benefit from a lower rate provided that your lender chooses to pass the cut on.
With a fixed-rate deal, your interest rate will remain the same until the end of your fixed-rate term. Average fixed mortgage rates are lower than they were 12 months ago. However, they are still high compared with the rates available in 2021. This means that you will more than likely have to pay a higher rate than you are now when you change to a new deal. However, it’s hoped that mortgage lenders will respond positively to the rate cut with lower rates for new deal releases.
As a first-time buyer looking to get onto the property ladder, the current mortgage rates can make it hard for you to pass the mortgage affordability checks. With the possibility of more competitive deals emerging following the base rate reduction, deals with lower rates may enable you to meet the affordability criteria.
Get expert mortgage advice and comparisons
Whether you’re looking to buy a property or want to change the mortgage deal you currently have, we’re here to help. Our mortgage brokers are available on 01322 907 000 to offer you expert, impartial advice and search for comparisons.
If you have a fixed-rate deal that’s expiring soon, now is the time to start searching for a new deal. You can secure a new deal up to 6 months before your current fixed-rate deal ends. That way, you won’t risk your interest rate automatically reverting to your lender’s standard variable rate (SVR). SVRs tend to be very expensive compared with other mortgage rates. If you do this and a better deal surfaces before the end of your fixed term, you can change it.
If you’re thinking about buying a property, our mortgage brokers can discuss your circumstances and help you prepare. They can advise you on the right type of mortgage and the paperwork needed for your mortgage application. With unrestricted access to the market, they can search for the best deals to suit your needs.