How does the interest rate cut affect you?

The Bank of England has cut the Base Rate from 0.50% to 0.25% - so what does that mean for borrowers and savers?

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The rate hit 0.5% way back in 2009 – which means around 2 million people who’ve bought their house in the past seven years might never have seen a change in their interest rates.

But even for those who’ve experienced fluctuations in base rates, it will be a distant memory.

So what’s going to happen to the cost of your loan?

The good news is that the base rate has come down – there had been some speculation that an increase might be needed to bolster Sterling on the foreign exchange markets, which would have made borrowing more expensive.

But the reduction does not mean everyone’s mortgage will suddenly get cheaper.

If you have a tracker mortgage, where the rate tracks the Bank of England base rate plus a certain percentage, then your payments will reduce, probably from next month.

If yours is a variable rate mortgage, any fall in costs will depend on your lender following the Bank of England’s lead – there’s no guarantee that will happen.

Even if lenders do reduce their interest rates, it might take a few months for the savings to filter through.

One option might be to consider moving from a variable to a fixed rate deal.

This is because the base rate simply cannot fall much further, so fixing at a low rate today wouldn’t mean you’d miss out on further significant falls – and you would be protecting yourself from any rate rises for the duration of the fix.

That said, it’s probably worth waiting for a week or so to see how lenders react to today’s announcement. As the dust settles, we’ll get a clear idea of which are the most competitive deals to go for.

If you’re already signed up to a fixed rate deal, then your monthly payments WON’T change even though rates have reduced.

And given that you’d be clobbered by an exit penalty if you tried to get out of your fixed deal prematurely, it’s probably worth staying put until your deal matures, at which point you can shop around for a competitive rate.

Help is at hand!

If you have any questions about your mortgage, you can call mortgage broker London & Country on this number: 0800 273 2308

Their advice is completely free.

We've also built a really clever calculator that will tell you how the base rate cut will affect you and whether you'll be better or worse off as a result.

Click here to try it out.

Base Rate Calculator

What about personal loans?

If you have a personal loan, it’s probably fixed, so you should sit tight rather than pay it off and move to a cheaper deal, as you’d probably have to pay a fee.

If you’re thinking about borrowing, perhaps to buy a new car in September when the new reg plates come out, it might be an idea to wait and see how loan rates stand in a couple of weeks.

That will give time for the base rate cut to filter through to personal loan rates.

And what about savers?

Savings rates have been painfully low for many years, and the base rate move could see them tick even lower.

There are two courses of action here.

First, make sure your long term savings are in the absolute best home, generating the maximum return.

Don’t settle for a miserly rate if there’s a better one elsewhere. Check out our savings channel to see what is available in terms of ISAs, bonds and peer-to-peer lending.

The second action is to look at the returns you can make on your current account.

Traditional current accounts pay a tiny sliver of interest if they pay any interest at all, but the new breed pay interest of as much as 5% on a limited amount.

You have to pay in monthly and run direct debits, but if you need a current account, why not have one that pays you for having it?

Again, you can check out what’s on offer on our current accounts page.

BoE Base Rate 1985 -2016

Please note: any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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