The Bank of England has announced a cut in its base rate interest to 0.25%. As The Guardian reported in August 2016, this will reduce monthly payments on a tracker mortgage, but will not affect fixed rate mortgages and is unlikely to affect standard variable rate mortgages.
Tracker mortgages rise or fall at a percentage above the Bank of England Base Rate. A person with a mortgage of £150,000 with the average 2.86% above base rate will see their repayments fall by about £19.68 following the bank rate reduction, The Guardian’s article states.
Standard variable rate mortgages are based on the default rate of the lender. When the Bank of England base rate decreases, lenders are not obliged to reduce their default rate. Some may reduce their rates, but many may decide to keep theirs unchanged.
Bridging loans are influenced by the base rate and could fall slightly. Other types of borrowing, such as overdrafts and credit cards, do not follow the base rate and are unlikely to be reduced.
Though the reduction in the base rate will not reduce fixed rate mortgages, these mortgages are generally available at a low rate.
Property journalist Hilary Osborne, writing in The Guardian, has speculated on whether the low cost of lending and availability of mortgages could raise house prices. She thinks that this is possible, but borrowers still need to be able to afford repayments and have the necessary deposit. This is unaffected by the base rate reduction, so Osborne suspects it is unlikely to lead to a large increase in mortgage applications.