Bank of England slashes interest rates - here's what it means for your money

What does it mean for my mortgage?

Most mortgage borrowers aren’t impacted immediately as they are on fixed rate deals.

Trade body UK Finance says 85% of all mortgages - some 7.1 million - are fixed in this way. But that still means the other 15% - just over 1.1 million borrowers - are likely to be impacted at some point.

The rate cut will save a typical borrower with a variable rate mortgage and a balance of £175,000 around £29 a month to £1,292, according to broker L&C Mortgages, leaving that nearly £350 a year better off. That is on top of previous rate cuts and before any others to come.

On a typical £250,000 variable rate mortgage, the saving would be £41 a month or £492 year, and for those with a £350,000 balance the savings would be £57 a month and £684 a year.

The rate cut also has an impact on fixed rate mortgages, but not immediately. Lenders have already largely adjusted such rates ahead of the Bank of England’s latest vote.

David Hollingworth, associate director at L&C Mortgages, said: "The good news for fixed rate borrowers coming to the end of a deal is that rates have been falling. That’s because today’s cut was so widely expected that it’s already allowed lenders the chance to improve their rates although means we are unlikely to see fixes plummet further because of today’s cut.

"Two year rates are now the cheapest deals but borrowers need to think carefully about whether longer term security would suit them better, rather than heading straight for the lowest rate. "

READ MORE: Interest rates LIVE: Bank of England cuts interest rates in boost for millions

What does it mean longer term?

Hundreds of thousands of mortgage borrowers who took out home loans several years ago are among those keenly watching what happens to rates.

Many bagged cheap deals and are still facing a rate shock, even though lenders are gradually bringing out better deals.

According to trade body UK Finance there are 900,000 fixed rate deals ending in the second half of this year. They include borrowers with two-year fixed deals, taken out in 2023, who may well see a rise in their repayments. But the bigger hit will be those on five year fixed rates who took them out in 2020.

I’m a saver, what does it mean for me?

This isn’t good news if you’ve got money squirrelled away. While it is not a given, banks and building societies may look at the base rate cut to rim their savings rates.

In reality, what they do may also depend on how keen they are to attract depositors’ funds, and that can in turn depend on whether they are looking to grow their mortgage book.

Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, an online investment platform, said: “Falling interest rates typically lead to lower returns on savings accounts, and with inflation still elevated, the real value of nest eggs might start to erode if they are not kept in the accounts paying the highest rates. “Those wanting to secure the top deals must act fast, particularly if they still have money languishing in older accounts offering dismal returns.”

Rob Morgan, chief investment analyst at Charles Stanley, added: “It may be worth considering fixed term accounts where rates are a little more generous than for easy access – provided the money isn’t required before the end of term. If base rates are cut further the return on a fixed rate account will be protected, whereas rates on easy access accounts have little chance of improving and could instead drop away.”

Will rates keep falling?

While today’s cut was expected, the future path is far from certain given a sharp pick-up in inflation.

Interest rates are used to try to take some of the heat out of inflation, by denting consumers’ spending power. Inflation is running at 3.6% and is widely expected to increase still further. Food price inflation is above 5% and is forecast to hit 6% in the second half of this year. The Bank of England now expects inflation in general will peak at 4% in September, up from its previous estimate of 3.5%, so a sharp revision. But it is under pressure to keep cutting rates, however, is it seen as important to boost the economy.

Given inflation is picking up, Bank of England Andrew Bailey was asked whether interest rates would definitely keep falling. “Yes,” he insisted, “But what I would say is I do think the path continues to be downwards.” He went on: “There is genuine uncertainty about the course of the direction of rates. The path has become more uncertain.”