The Bank of England has cut the base rate for the first time in more than seven years, reducing it from 0.5% to a new historic low of 0.25%. Here's what it means for mortgages, savings, exchange rates and more.
- Some mortgages will get cheaper. Around 1.5 million homes are on tracker mortgages, and these should drop, though fixes won't change and with others it's not clear-cut. If you're shopping for a mortgage, while rates may come down slightly, as they're already very low, why wait? See Mortgages analysis.
- It's more bad news for savers. Savings rates have been woeful for years and are now likely to fall further, although if you've a fixed rate account you're protected for the time being. See Savings analysis.
- The pound has fallen further. In the wake of the announcement we saw a further drop in sterling - the pound already bought fewer euros and dollars following the Brexit vote. See Exchange rates.
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The base rate is the Bank of England's official borrowing rate, which influences what borrowers pay and savers earn.
While there's some immediate impact, the decision's also a major signal that after years of stable rates, we've entered a period when they could start moving again. The fact that the Bank of England's willing to change rates is almost more important than the margin of the change. In fact, a majority on its Monetary Policy Committee say they expect a further cut in the base rate later this year.
The rate cut was announced as part of a package of measures which the Bank of England says is "designed to provide additional support to growth". As well as the cut to the base rate, that package includes the purchase of up to £10 billion of corporate bonds and up to £60 billion of UK Government bonds – a move designed to inject more money into the financial system.
Some will see mortgages get cheaper after the base rate cut. Whatever the impact, if coming to the end of your fix or tracker, pounce on a new deal as your rate will likely rocket soon - you can usually do this three months ahead. If looking for a new deal, whatever the reason, see our Remortgage PDF Guide or First-time Buyers' PDF Guide for help, plus our Mortgage Best-Buys Comparison for the top deals.
- Fixes are fixed - check if you'll save ditching yours. They account for half of mortgages, and as the name suggests, rates WON'T change during the fixed period. That doesn't mean doing nothing.
Use our Ditch your fix? tool to check if you can save by switching from a pricey fix. For example, if you've a 3.49% fix with 23mths left on a £100,000 mortgage, you could save if you can switch to anything better than a 1.51% fix with a £1,000 arrangement fee, even taking into account £2,800ish extra switching fees. It won't work for all, so check via the tool.
- Will your lender cut your standard variable rate (SVR) or 'discount' mortgage? These move at lenders' whim. See the table below for which have announced cuts.
SVRs, which average 4.8%, are pricey, so don't automatically stick even if your rate is cut. You'll usually be on an SVR when your fix or tracker ends. A 'discount' follows the SVR at a set rate, eg, if the SVR is 4% and the rate is SVR minus one percentage point, it's 3%. See SVR Help.
- Check when your tracker will fall. As the name suggests, these 'track' the base rate, so for the 1.5 million on them, mortgage costs should drop by an average £20/mth on a typical £150k mortgage. See our the table below for when each plans to cut the rate.
A tiny number won't see rates drop where their deal has what's called a 'collar', which prevents rates falling below a certain level. You should be contacted by your lender if you're impacted.
Guy Anker, managing editor at MoneySavingExpert.com, says: "Anyone with a fixed rate mortgage won't see a change for now, but trackers should fall in price and we implore lenders to pass on these savings to borrowers as soon as possible – though inevitably some bad boys will delay".We've spoken to all the major providers in the wake of the base rate cut to ask them what they're doing, and here's what they've told us. We'll update this table as we get more info.
|Provider||Change to tracker mortgages||Change to SVRs|
|Bank of Ireland||
0.25 percentage point cut (from 5 Aug for new customers; from 1 Sep for existing)
0.25 percentage point cut to 4.24% (from 19 Aug for new customers; from 1 Sep for existing)
|Barclays||0.25 percentage point cut (from 5 Aug for new customers; from 1 Sep for existing)||0.25 percentage point cut to 3.74% (from 5 Aug for new customers; from 1 Sept for existing)|
|Britannia||0.25 percentage point cut from 1 Sept||0.25 percentage point cut to 4.49% from 1 Sept|
|Clydesdale||Will pass on changes "in line with T&Cs" but won't say when||0.25 percentage point cut from 4.7% to 4.95% from 1 Sept|
|Co-op Bank||0.25 percentage point cut from 1 Sept||0.25 percentage point cut to 4.49% from 1 Sept|
|Coventry||0.25 percentage point cut from 1 Sept||0.25 percentage point cut to 4.49% from 1 Sept|
|First Direct||0.25 percentage point cut from 5 Aug||It is not passing on the base rate saving. The SVR will remain at 3.69%|
|Halifax||0.25 percentage point cut from 1 Sept||0.25 percentage point cut to 3.74% from 3.99% from 1 Oct|
|HSBC||0.25 percentage point cut from 5 Aug||0.25 percentage point cut to 3.69% from 3.94% from 1 Sept|
|Leeds BS||0.25 percentage point cut (date dependent on product's T&Cs)||0.25 percentage point cut to 5.44% from 5.69% from 1 Sept|
|Lloyds||0.25 percentage point cut from 1 Sept||0.25 percentage point cut to 3.74% or 2.25% from 1 Sept *|
|Nationwide||0.25 percentage point cut from 1 Sept||0.25 percentage point cut to 3.74% or 2.25% from 1 Sept *|
|NatWest||0.25 percentage point cut (we're checking when this will happen)||0.25 percentage point cut to 3.75% from 4% from 1 Oct|
|Northern Rock Asset Mgmnt||0.25 percentage point cut||0.25 percentage point cut (from either 1 Sept or 1 Oct depending on T&Cs)|
|OneSavings Bank||N/A||0.25 percentage point cut to 5.83% from 6.08% from 1 Sept|
|Principality||0.25 percentage point cut from 1 Sept||0.25 percentage point cut from 4.99% to 4.74% from 1 Oct|
|RBS||0.25 percentage point cut (we're checking when this will happen)||0.25 percentage point cut to 3.75% from 4% from 1 Oct|
|Santander||0.25 percentage point cut from 1 Sept||0.25 percentage point cut to 4.49% from 1 Sept|
|Scottish Widows||No info - we're waiting to hear back||0.25 percentage point cut to 3.74% from 1 Oct|
|Skipton||0.25 percentage point cut (we're checking when this will happen)||0.25 percentage point cut to 4.70% from 4.95% from 1 Sept|
|TSB||0.25 percentage point cut (from 8 Aug for new customers; from 1 Sept for existing)||0.25 percentage point cut to 3.74% or 2.25% (from 8 Aug for new customers; from 1 Sept for existing) *|
||0.25 percentage point cut – (from 5 Aug for new customers; from 1 Oct for existing – Virgin says this timing is "contractual" and would've applied if base rate had gone up)||0.25 percentage point cut to 4.54% or 4.29% from 1 Sept *|
|West Brom BS||0.25 percentage point cut from 1 Sept||It is not passing on the base rate saving. The SVR will remain at 3.99%|
|Yorkshire BS||0.25 percentage point cut from early Sept||0.25 percentage point cut to 4.74% from early Sept||
* Customers who took out their mortgage before 30 April 2009 are on its Base Mortgage Rate, currently 2.5%. Mortgages reserved with Nationwide after that date are on its Standard Mortgage Rate, currently 3.99%.
Last updated 4.50pm Tue 20 Sept.
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I'm looking for a mortgage – what should I do?
Our message for months has been that mortgage rates are already incredibly low, so if you're looking for a deal and you qualify for one, why wait? The base rate going down doesn't change that message. See our First-time Buyer Guide or our Remortgage Guide for full help and our Mortgage Best-Buys Comparison Tool to find top deals.
There is a chance we will see slightly lower mortgage rates, though some experts doubt they can go much lower. For example, HSBC offers a two-year fix at 0.99% with a £1,499 fee for people with a 65% deposit. The Bank of England itself said it expects any cuts will be limited - so far we've seen Nationwide cut the majority of its fixed rate mortgages for new customers by up to 0.2 percentage points.
The 'why wait?' message particularly applies if you're buying a new home. A base rate cut may save you a few pounds per month if rates drop as a result, but you could risk not getting your dream home if you dally.
Guy says: "Mortgage rates are already at rock bottom with possibly not much further to go, so if you're in the market for a deal, be wary of waiting for rates to drop further. The last thing you want to do is risk missing out on clinching a property by waiting too long."
The base rate cut is yet more bad news for savers – rates have been meagre for years, and now the interest you earn is likely to fall further, though if you have a fixed rate account you are protected from rate drops for the time being.
There have already been rumblings about Santander chopping the headline interest rate it offers on its popular 123 current account from 3% to 2% and there's a chance the base rate cut could seal the deal – the bank now says rates are under review.
Banks must give existing customers at least two months' notice of a cut (for current accounts and instant access savings accounts), though of course rates for new customers could drop instantly.
|Provider||Savings account rates||Current account interest rates|
|Bank of Ireland||Rates under review||Rate under review|
|Barclays||Rates under review||No info – we're waiting to hear back|
|Britannia||Rates under review||N/A|
|Clydesdale||No info – we're waiting to hear back||No info – we're waiting to hear back|
|Co-op Bank||Rates under review||N/A|
|Coventry||Rates under review, potential changes to be made from Sept||N/A|
|First Direct||Rates on its cash ISA to fall by 0.4 percentage points for new and existing custs, from 1.30% to 0.9% from 18 Oct||N/A|
|Halifax||Rates under review, but accounts tracking the base rate will fall by 0.25 percentage points from Sept||We're checking|
|HSBC||Rates will be reduced by no more than 0.25 percentage points from 25 Oct||N/A|
|Leeds BS||Rates under review but accounts tracking the base rate will fall by 0.25 percentage points||N/A|
|Lloyds||Rates under review but accounts tracking the base rate will fall by 0.25 percentage points from Sept||We're checking|
|Nationwide||Some accounts will keep rates, others may drop but by no more than 0.25 percentage points (1)||Rates may drop but by no more than 0.25 percentage points|
|NatWest||Still under review - although some rates will drop by more than 0.25%, depending on the account||No change|
|OneSavings Bank||Rates under review||N/A|
|Principality||No immediate change. Customers will be written to with details of any changes that may be made||N/A|
|RBS||Still under review - although some rates will drop by more than 0.25%, depending on the account||No change|
|Santander||Rates under review but not to be reduced by more than 0.25 percentage points||Rates under review – there has been speculation the 123 account headline rate could drop to 2%|
|Scottish Widows||Rates to be cut (but not until after 1 Oct for exisiting custs)||N/A|
|Skipton BS||Rates will be reduced by no more than 0.25%, and no rates will be lower than 0.10%||N/A|
|TSB||Rates reduced by 0.25 percentage points||No change|
||Rates under review but not to be reduced by more than 0.25 percentage points||Rates under review|
|West Brom BS||Rates under review but accounts tracking the base rate will fall by up to 0.25 percentage points from 8 Aug||N/A|
|Yorkshire BS||Rates on existing variable rate savings accounts will fall by up to 0.25 percentage points from Sept||No info – we're waiting to hear back||
(1) Nationwide customers with Flexclusive Regular Savers, Regular Savers, FlexOne Regular Savers, Help to Buy ISAs, Save to Buys and Save to Buy ISAs won't see their rates drop.
Last updated 8am Thu 15 Sept.
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What should I do with my savings?
The key is to make sure your savings are in the best place anyway. Rates were already poor and may get poorer, so regardless of the cut it's important to check your rate and switch to a top payer. Our Savings Fountain shows the best way to save – also see our Top Savings Accounts guide for the top rates.
Of course, there's always a risk you could move to a firm that then drop its rates, though if it's easy access you could always just switch again.
Note that if you want to stash your money in a fixed-term savings account for a year or so to lock in today's rate, go quick as rates may soon fall for new customers. At the time of writing, top picks included 1.1% on a six-month bond offered by Habib Bank Zurich and 1.55% on a one-year fix offered by Paragon Bank. For more, see our fixed-rate savings accounts guide.
Some bank accounts' in-credit rates smash easy access savings accounts and ISAs – especially now all interest is paid to you tax-free. See more interest-paying bank accounts.
One thing to consider is to pay off your debts first if the rate of interest you're paying on them is more than the rate of interest you'll be getting on your savings – so long as you have, or are able to raise, money for a rainy day.
Guy says: "Savings rates were already dire and may get worse. The key is to ditch poor-paying accounts and get creative as you can gain more in a top current account – some pay 3-5% compared to 1%-ish on standard savings accounts. Of course, the rate on any account may drop so those rates may not be quite as attractive in future."
We've already seen a further fall in the value of the pound as a result of the Bank of England's announcement, which means you'll get less for your money when holidaying overseas. Just before the announcement at 11.40am today (4 August), £1 bought €1.198 and $1.333. By 5pm on 4 August £1 bought €1.18 and $1.31, and as of 3.30pm on 9 August £1 bought €1.17 and $1.30.
No one knows how currencies will move, but we've a buy cash trick to protect against currency swings. Plus see our Top Travel Cards guide for how to get a specialist credit card which gives near-perfect rates worldwide, and for cash, our our TravelMoneyMax holiday money comparison tool finds the cheapest near you.
What about the impact on prices – eg, fuel and energy?
As the pound's weakened further as a result of the base rate cut, there's a chance that could drive up energy and fuel prices. That's because we buy the raw commodities for these in dollars and dollars will become more expensive – as they have since Brexit.
However, there are lots of factors which affect energy and fuel prices so it's not clear-cut. The cost of petrol and diesel rose in the wake of the Brexit vote but have since dropped slightly, despite the pound remaining weak, with the cost of unleaded now averaging around £1.10/litre. See our Cheap Gas & Elec and Cheap Petrol guides for more info.
If you're close to cashing in a private pension, there may be an impact. Tom McPhail, head of retirement policy at wealth manager Hargreaves Lansdown, warns those planning to convert a pot of pension cash into an annuity – an income for life – are likely to face lower payouts.
He says: "We may see insurance companies slash annuity rates again. This is bad news for the huge numbers of retirees needing a secure income in retirement. History shows us that individuals have rarely benefited from waiting for annuity rates to improve and with interest rates looking set to stay lower for longer it may still pay to buy an annuity."
However, if you've years to go before retirement, the impact is less clear. It's only when you actually cash in your pension that you'll be affected by changes to annuity rates. See our Guide to Taking Your Pension for more info.
What's going to happen to credit card, loan and overdraft rates?
Credit card interest rates are unlikely to move following the base rate cut. Credit card rates are priced more for the risk that borrowers represent to lenders, rather than the cost to them of the cash they're lending you, so there's no direct correlation.
The only exception is if you have one of the few cards on the market, such as the Halifax Clarity, where the interest rate is tied to the base rate. With cards like these, you have a 'personal interest rate' and 'base rate' and these combine to give the credit card's APR. If the base rate moves, your card's APR will move with it – in this case, it'll be downwards.
For those in the red on their bank account, there's likely no good news; overdraft rates – like the majority of credit card rates – are unlikely to move.
Loan rates are also based on risk, to an extent, but do have more of a connection to base rate changes than credit card rates, so these could be expected to fall. However, balanced against this is the fact that loan rates are already the cheapest they've ever been, driven down by strong competition between banks. Profit margins are already low for lenders, which may mean that loan rates don't actually have far to drop.
One lesser known impact of the base rate cut is that it means some graduates will have less interest than previously expected added to their student loan each month from September.
That's because the rate for those who graduated between 1998 and 2011 in England and Wales (and post-1998 graduates in Scotland and Northern Ireland) changes every September and it's either the previous March's inflation (RPI) rate or the UK base rate + 1%, whichever's lower.
March 2016's inflation rate was 1.6%, but the new base rate plus 1% is 1.25%, meaning a small saving for some students. (This new rate won't be officially confirmed until later this month, but there's an agreed methodology to set it already in place.)
For more on how these repayment rates are set, see our Should I repay my student loan? guide.
Additional reporting by Faye Lipson, Karl Talbot and Rosie Bannister.