At the beginning of August the Bank of England cut interest rates from 0.50% to 0.25%, reaching a new record low and introducing the first cut since way back in 2009, in order to counter the threat of a post Brexit recession.
In this short article we have put together some potential answers to some of the most commonly asked questions in relation to the interest rate cut, as we look at mortgage rates, personal loans and pensions.
How will this impact those with mortgages?
Those home owners who have a ‘tracker mortgage’ will be most pleased as they are certainly the ones that will see the most immediate benefit. The Council for Mortgage Lenders has revealed that ‘on an average mortgage of £114,000, the cut would be worth around £15 a month.’
Those with a fixed rate mortgage won’t see an immediate saving and in fact nothing will change, but it might be worth shopping around to see if they are eligible for a better and cheaper deal.
If you have a variable rate mortgage any fall in costs will depend on the lender – some lenders may not follow the Bank of England’s lead.
The Bank of England will also be introducing a Term Funding Scheme in an attempt to encourage lenders to pass on the lower rates to businesses and households.
How will it affect personal loans and credit cards?
Interest rates on personal loans have fallen remarkably over the years and currently they stand near to their lowest ever level. Personal loans are mostly taken out at a fixed rate and therefore those with personal loans will probably not benefit from the interest rate cut.
What about pensions?
It has been widely talked about that the Bank of England have added further stimulus measures to the rate cut – in particular, the purchase of government and corporate bonds. but This will have not have any direct effect on the state pension, but according to the BBC ‘extra pressure will be added on to the deficits facing defined benefit pension schemes, for example final salary pensions, putting increased pressure on businesses to plug the gap or reduce the availability of such pensions.’
The opposite side to this is that share prices have been driven up by the banks decision. This means that people investing and paying into a private pension might see a boost in the value of their investments.
To conclude the cut in interest rates by the Bank of England has been made to reduce the likelihood of a recession, with the bank of England having warned that they expect to see ‘little growth until the end of the year.’