Relief for homeowners as interest rates fall
Interest rates have been cut to their lowest level in two-and-a-half years, providing some much-needed relief for homeowners, although it’s less positive news for savers.
The Bank of England’s Monetary Policy Committee voted by five to four to lower the base rate by quarter of a percentage point to 4%. It was last at 4% in February 2023.
Jenny Ross, Editor of Which? Money, said: “This latest rate cut has been anxiously awaited by mortgage borrowers, with rates finally falling to levels not seen since spring 2023. While this should offer some respite to first time buyers and those coming to the end of fixed rate deals, borrowers will be hoping for further decreases over the next few months.”
August’s rate cut is likely to save the average borrower with a £250,000 variable rate mortgage around £40 a month, with some lenders reacting immediately to the news. Nationwide Building Society, for example, said it would reduce its standard variable rate to 6.74% with effect from 1 September.
However, if you’re on your lender’s standard variable rate, you should be able to make considerable savings by remortgaging to a more competitive deal, with two-year fixed rates currently starting from around 3.73% and five-year fixes from 3.88%. These very low rates are reserved for those with a 40% deposit to put down if buying, or the equivalent amount of equity if remortgaging, but even if you don’t qualify for these, you’re still likely to save by switching.
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “There remains a clear financial gain for borrowers to shift from a variable rate mortgage onto a cheaper fixed rate, as a typical mortgage borrower being charged the current average Standard Variable Rate (SVR) of 7.42% would be paying £372 more per month, compared to a typical two-year fixed rate of 5.01%.”
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Savers urged to seek out best returns
Although the base rate cut is good news for homeowners, savings returns will fall further, so savers will need to do their homework to seek out the best returns.
Andrew Hagger, Personal Finance Expert at Moneycomms.co.uk said: “Savers will be understandably disappointed but if you've got your savings sitting in your current account earning zero interest or an easy access account paying a sub 2% rate why not find a new 'no strings' easy access deal (it takes a matter of minutes). Hodge Bank pays 4.40%, Charter Savings 4.36% and Spring 4.30% - all worth a closer look and a great way of bagging more interest despite the latest base rate cut.”
According to research by Investec Bank, many savers are looking for protection from falling rates by opting for fixed rate savings accounts. It says that 37% are planning to switch their money into fixed rate savings accounts this year to beat rate cuts.
David Hunt, head of savings at Investec Bank said: ““This is the fifth base rate cut since last summer and we predict there are still more cuts to come later this year and into 2026. Savers need to act quickly if they want to move their money to fixed rate accounts with higher rates as we’re likely to see these start to disappear from the market.”