Base rate cut to historic low of 1.5%

The Bank of England’s Monetary Policy Committee has announced a further cut to the base rate, taking it to 1.5% – the lowest rate since the Bank was founded in 1694.

Prior to the cut, the question had been not ‘will they cut it?’ but rather ‘by how much?’. Predictions varied from 0.25% to 1%, with most analysts seeing a cut of 0.5% or 0.75% as the most likely outcome.

What really matters to borrowers, of course, is how much of the base rate cut is passed on, in the form of cheaper loans and mortgages.

“There’s no guarantee that lenders will pass on the full base rate cut,” said a loans expert for Think Money. “This isn’t just because the base rate isn’t the only factor determining the cost of their funding: it’s also because they’re heavily dependent on savers’ deposits, which means they can’t afford to cut the interest rates they offer on their savings accounts.

“That said, anyone with a tracker mortgage that doesn’t have a collar (a pre-defined minimum interest rate) is guaranteed to see their monthly payments come down by the full amount – and a couple of mortgage providers have already pledged to pass on today’s cut in full to customers with a standard variable rate (SVR) home loan. But the majority of lenders are more likely to reduce the rate on their SVR mortgages by around half the base rate cut we’ve just seen.”

Looking ahead, it’s possible the base rate will fall all the way to zero this year, even though this would bring its own negative consequences – one of which would be the knowledge that it can’t fall any further.

Tags: base rate, base rate cut, bank of england, mortgages, mortgage, loans, loan, bank of england base rate, bank of england base rate cut

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