The Bank of England‘s announcement that the UK’s base interest rate will drop to 4.5% could have consequences for households on fixed-rate mortgages.
While homeowners on tracker and standard variable mortgage rates (SVRs) will see more immediate reductions in their payments, those on fixed-rate plans could also benefit from the cut, which slashed the base rate from 4.75% to 4.5% on Thursday.
Borrowers on tracker mortgages, which follow the Bank’s base rate plus a set percentage, will see monthly reductions of £28.98 straight off the bat, according to industry body UK Finance.
Those on SVRs, meanwhile, could see repayments drop by £17.17 if the reduced rate is passed onto them in full – though this is at the discretion of individual lenders.
The bulk of homeowners, however, are on fixed-rate deals and will not see any immediate change to their payments. But experts have advised that around 1.8 million fixed plans are expected to end this year – allowing them to also take advantage of cheaper rates.
Industry voices also pointed to a drop in swap rates – the rates at which banks exchange fixed interest payments for variable plans – as an indication that mortgage rates could continue to fall in the future, potentially benefiting those on fixed plans.
“The question is when the next rate cut will come, with markets pricing in three reductions to base rate this year,” Mark Harris, chief executive of the mortgage broker SPF Private Clients said.
“Swap rates continue on a downwards path, with lenders dropping their mortgage rates [and] in part reversing recent increases,” he told This Is Money.
“A continual decline in swaps would enable lenders to price more keenly, easing borrowers’ affordability concerns.”
Ravesh Patel, director and senior mortgage consultant at Reside Mortgages, added: “If you’re on a fixed-rate deal, your payments won’t change until your current term ends.
“However, those looking to secure a new deal may start to see gradual reductions in fixed mortgage rates, depending on market conditions, [though] rates are unlikely to return to the historic lows seen in the past decade.”
Francis Haque, chief economist at Santander, also said the base rate cut represented “light relief” for homoewners whose fixed-rate mortgages are maturing this year – but meant those coming off five-year terms would “still be moving to rates significantly higher [than they were paying before]”.
He added: “With house prices set to continue to rise, albeit at a slower pace, and mortgage approvals remaining strong, spurred on by the upcoming change to stamp duty, we are however looking towards a more buoyant housing market as we progress through the year.”
