Yesterday, The Bank of England’s Monetary Policy Committee (MPC) voted 5-4 to reduce the base rate from 5.25% by a quarter of one percent to 5%. Their decision comes after the UK’s inflation figures stays at their target of 2% for two consecutive months and is the first time since March 2020 that they have voted for a reduction in the base rate.
The MPC’s role is to ensure that inflation in the UK stays at 2% however over the last two years, this has been as high as 11.1%. High inflation pushes the prices up of everything that we buy, the main tool that the committee has is to increase interest rates in a bid to curb peoples spending. By doing this, demand for goods reduces and in turn helps drive prices down or at least the speed at which they are increasing.
What does their decision mean for my mortgage?
If you have a fixed rate mortgage, you will not see your payments change as your interest rate is set for the agreed period you took it for. However, if you have a base rate tracker, you will see a reduction in your payments almost straight away. Your lender will be in touch to explain how this reduction affects your mortgage specifically. You may have a discounted variable rate, his type of mortgage product is not directly linked to the base rate and is based on your lenders specific variable rate. Therefore, it is up to your lender as to whether they pass this reduction on.
How has the mortgage market reacted?
The initial reaction to the decision yesterday is positive. The rates at which lenders trade money at has fallen sharply since the news broke yesterday, should this continue then over the next few days/weeks we should see lenders start to reduce their mortgage products.