The MPC said that inflation fell to 1.7% in September but is expected to increase to around 2.5% by the end of the year ‘as weakness in energy prices falls out of the annual comparison’.
What the cut means for existing mortgage borrowers?
If you have an existing fixed rate mortgage, you won’t be affected by interest rate movements until the end of your agreed fixed period, so today’s announcement won’t impact your repayments.
If you have a tracker mortgage, your pay rate should fall by 0.25 percentage points in the next month.
If your mortgage is variable – such as a discounted rate, a capped rate or you are on your lender’s standard variable rate – your rate may fall in the coming weeks, although this is at your lender’s discretion and it may not be by the full 0.25 percentage points.
What about new deals?
If you are a looking for a new mortgage – either to buy a property or because you are coming up to remortgaging, you might be hopeful for lower rates on new deals. In fact some lenders have increased their mortgage rates in the last few weeks, possibly in anticipation of this cut, and it’s not clear if they will fall as a result of today’s decision.
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Alice Haine, Personal Finance Analyst at Bestinvest, said: “One concern for those looking to refinance soon is that mortgage rates may not behave exactly as they would like them to. Rising bond yields in the wake of the Budget and the US election have impacted swap rates, which underpin mortgage pricing, with some lenders recently upping rates despite an expected interest rate cut.
“Swap rates can be volatile, as they are essentially based on what markets think will happen to interest rates, so whether the markets settle in the coming days and weeks will determine what happens to mortgage rates from here.
“Those nearing the end of their product’s fixed-rate term now have a difficult decision on their hands; do they secure another fixed-rate deal, or gamble on further interest rate cuts, which may mean a tracker might work out best over the longer term?
“Whatever option they choose, getting advice from an independent mortgage broker is key otherwise they risk reverting to their lender’s ultra-expensive standard variable rate, with the average SVR still hovering just below the 8% mark.”
