In a move that was widely expected, the Bank of England has confirmed interest rates in the UK have been cut to 4 per cent, the lowest interest rates have been for two years.
Having been at 4.25 per cent, a narrow vote between Bank of England officials swung in favour of a cut. It is the fifth cut in the past year which is a sign of some progress but remains significantly higher than the Government’s 2 per cent target.
It is a positive step that interest rates will fall slightly but it’s unlikely to change much for mortgage payers and savings.
How much will the cut impact mortgage rates?
The Bank of England’s announcement that interest rates have been cut to 4 per cent naturally means mortgage rates will be cut and borrowing money will be marginally cheaper.
However, the vast majority of mortgage holders in the UK are on fixed terms therefore, the interest rate cut will not apply.
The cut to interest rates is better news for individuals coming to the end of their mortgage agreements or are looking to buy property. With borrowing slightly cheaper and interest rates lower, there is a bit more breathing space costs wise.
In addition to this, people with tracker mortgages will also the benefits of an interest rate cut. A tracker mortgage has a variable interest rate, and this means the cut will see monthly payments reduce, putting those funds into the pocket of the mortgage payer.
In the case of tracker mortgages, the difference is immediate with payments likely to reduce but for others, it is a longer waiting game that in some cases will not make a difference at all.
How will the interest rate cut affect my savings?
The interest rate cut isn’t great news for people with savings as the rate of individuals saving continues to decline.
The average saving rate in the UK is currently 3.5 per cent, a drop of 0.42 per cent in the last year and that figure is expected to continue falling.
The interest rate cut will decrease the interest paid on savings account, the reality is, individuals are in a difficult position where they may be forced to spending that because of the continued cost of living and inflation increases.
Inflation is likely to increase in September which will put further strain on savings, and this combined with falling interest rates will have a detrimental effect on the value of your savings.
Its not great news for individuals with savings and given the factors affecting the UK’s current economic climate, your savings are earning precious little and the value decreases.
What should I do if I’m concerned about my mortgage and savings?
If you have concerns about your mortgage, savings and the impact the interest rate cuts could have, it is always best to seek support and advice from finance experts.
They can give you the advice and support you need to make informed decisions, plan ahead and understand your own financial position.
The cut to 4 per cent is progress but it may not have much of an impact and given the concerns around inflation increases, it could be an ideal time to speak with finance experts.
Get in touch for tailored financial advice and support