The Monetary Policy Committee (MPC) has voted to cut interest rates by a quarter of a percentage point to 4.25% at today’s meeting. Members voted by a majority of five to four in favour of a quarter-point cut, with two preferring a 0.5 percentage-point reduction. Two members voted to maintain bank rate at 4.5%.
The MPC said it would continue to monitor inflation closely. While 12-month CPI inflation fell to 2.6% in March from 2.8% in February, it remains above the Bank’s 2% target but is moving in the right direction. However, it is expected to rise to a peak of 3.5% on average in the third quarter of this year, in part in response to higher household energy bills, although this is expected to be temporary.
Commenting on the decision, Mark Harris, chief executive of SPF Private Clients, says:
“While we welcome the rate reduction, we do feel that the Bank of England missed an opportunity to be bold and cut by 0.5 percentage points, to 4%. This would have sent out a strong message, helping boost the housing market and wider economy, particularly as the stamp duty concession has now ended.
“Swap rates, which underpin the pricing of fixed-rate mortgages, continue on a downwards path with lenders reducing mortgage rates in recent weeks and a plethora of sub-4% deals now available. This latest rate reduction was largely expected by the markets and has been factored into pricing already. However, a continual decline in Swaps should enable lenders to price more keenly in future, easing borrowers’ affordability concerns further.
Those on base-rate trackers will find their mortgage rate reduce by 25 basis points. A borrower with a £250,000 repayment mortgage on a 25-year term and a pay rate of 4%, will see that fall to 3.75%, with monthly payments dropping from £1,320 to £1,285.
With a variable-rate deal, the link between the lender’s variable rate and base-rate moves are less transparent. The lender may decide to pass on none, some, or all of the base-rate cut.
“Those looking to take out a new mortgage or refinance in coming months should plan ahead as much as possible, seeking advice from a whole-of-market broker such as SPF Private Clients. We expect the MPC to continue on the anticipated path for base rate with further reductions in coming months but what can’t be guaranteed is where rates end up, nor the pace it takes to get there.”
Rates can be booked up to several months before you need them so it’s worth speaking to your broker and doing this for peace of mind. If rates have fallen further by the time you come to take out your mortgage, you should be able to move onto a cheaper deal at that time.
