Base rate cut: good news for loans

13 October 2008

The base rate was cut to 4.5% last week in a special meeting of the Bank of England’s Monetary Policy Committee (MPC) – a move which will help many people with mortgages, loans and other forms of credit.

There had been much call for this cut from leading bodies such as the British Chambers of Commerce (BCC). Just three days before the cut, David Kern, Economic Adviser to the BCC, had stated: “To reduce the threats of a major recession, the MPC must cut interest rates to 4.50 per cent next week, and it must continue cutting rates to at least 4 per cent in the following 3 to 4 months.”

Whatever decisions the MPC makes next, the impact of Wednesday’s rate cut will be felt immediately by some people with loans and mortgages – but not all. Existing tracker loans automatically follow changes to the base rate; fixed-rate loans don’t; and standard variable rate (SVR) loans may or may not, at the lender’s discretion. As for new loans: any base rate cut makes it easier for lenders to offer all kinds of loans (tracker, fixed and SVR) with lower interest rates.

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