MSE News

Bank of England slashes interest rates to combat coronavirus 'shock' – what it means for you

Bank of England slashes interest rates to combat coronavirus 'shock' – what it means for you

The Bank of England has cut the base rate from 0.75% to 0.25% in an emergency response to the "economic shock" of the coronavirus outbreak.

The base rate is the Bank of England's official borrowing rate – ie, what it charges other banks and lenders when they borrow money – and it influences what borrowers pay and savers earn. 

The surprise rate-cut decision was taken at a special meeting of the Bank's Monetary Policy Committee on Tuesday. The Bank said the cut was a response to the "economic shock" of coronavirus and would "help to support business and consumer confidence at a difficult time, to bolster the cash flows of businesses and households, and to reduce the cost, and to improve the availability, of finance". 

The base rate was last cut in 2016, when it fell from 0.5% to 0.25%. It's risen twice since to reach 0.75%. But interest rates have generally been at historic lows since the 2008 financial crash. 

Here are the need-to-knows for your finances: 

  • Some mortgages will get cheaper. Homes with tracker mortgages – whose rates 'track' the base rate – should see their rates drop. However, fixes won't change and with others it's not clear-cut. See our 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 our savings analysis.

We'll be updating this story throughout today with more analysis and what banks and lenders are doing in response to the rate cut. And for full and constantly updated info on travel insurance, holiday bookings and more during the coronavirus outbreak, see our Covid-19 Coronavirus Help guide.

Martin: 'This is extraordinary, unprecedented economic shock therapy'

This is extraordinary, unprecedented economic shock therapy – interest rates as low as they've ever been for hundreds of years. The fact the Bank feels the need to do this shows the level of seismic coronavirus tremors running through the nation's finances.

The primary aim is economic stimulus. Reducing interest rates is an encouragement to spend and invest – it makes borrowing cheaper, and saving less attractive. And that's what they want – more money flowing through the economy.

I suspect this is primarily targeted at business, but it of course has a personal finance impact. While our first actions and thoughts need to be for the health of the nation's vulnerable – the impact on people's pockets can't be ignored.

The financial winners are those on variable and tracker-rate mortgages. They will see cost cuts of – very roughly – £25 per month per £100,000 of mortgage (use the MSE Mortgage Calculator to work out your exact reduction). And while it'll take a week or two to filter through, it's likely we'll see the rates of new mortgage fixes drop too – meaning it will be a very cheap time to remortgage.

Most loans, credit cards and other debts will likely be unaffected or only minimally affected because the Bank's interest rate only plays a small part in their rates.

The losers are savers. Many who've worked hard to build up a nest egg will be holding their head in their hands at this news. Savings rates have already been plummeting this year, and this will massively increase the height of the roller-coaster fall.

A rate cut has been expected, but not as big or quick as this. As fixed-rate savings tend to be offered in tranches – ie, a firm will have planned to bring in £10 million, until they fill that amount the rates won't drop – so quick movers may be able to bag top one or two-year fixed-rate savings today before the rates fall. See Top Savings Accounts.

For everyone else the advice is simple. Currently the average UK saver earns just 0.4%, while the best easy-access accounts pay 1.3%. All these rates will likely drop. Yet at the very least make sure your money is in the top payer, not the poorest.

I have a mortgage. What happens now?

Some will see mortgages get cheaper after the base rate cut – but it depends on the type of mortgage you have:

  • Fixes are fixed – check if you'll save ditching yours. As the name suggests, rates WON'T change during the fixed period – though any new fix you remortgage to in future may end up being cheaper now the base rate has dropped. 

    But that doesn't mean doing nothing until your fix runs out. Use our Ditch your fix? tool to check if you can save by switching. 

  • Lenders MAY cut standard variable rate (SVR) or 'discount' mortgages. These move at lenders' whim, so it depends what individual lenders decide to do – we're checking with the big ones now.

    You'll usually be on an SVR after your fix or tracker ends. A 'discount' mortgage 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%.

    SVRs are pricey, so if you're on one, don't automatically stick with it even if your rate is cut. 

  • On a tracker mortgage? Check when it will fall. As the name suggests, these 'track' the base rate, so mortgage costs should drop by an average £35-40/mth on a typical £150k mortgage. 

    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.

We're speaking to all the major providers now to ask them what they're doing in response to the base rate cut. These will be updated in the table below.

Whatever the impact, if coming to the end of your fix or tracker, pounce on a new deal – you can usually do this up to six months ahead. If looking for a new deal, whatever the reason, see our Remortgage Guide or First-Time Buyers' Guide for help, plus our Mortgage Best-Buys Comparison for the top deals. 

What mortgage providers are doing for existing customers

PROVIDER CHANGE TO TRACKER MORTGAGES CHANGE TO SVRS
Atom Bank N/A Waiting to hear
Bank of Ireland Waiting to hear Waiting to hear
Barclays 0.5 percentage point decrease from 1 Apr 0.5 percentage point decrease from 1 Apr
Birmingham Midshires Under review Under review
Bradford & Bingley 0.5 percentage point decrease from 1 Apr 0.5 percentage point decrease from 1 Apr
Clydesdale 0.5 percentage point decrease from next payment date 0.5 percentage point decrease from first payment date after 2 Apr
Co-op Bank 0.5 percentage point decrease from 1 Apr 0.5 percentage point decrease from 1 Apr
Coventry BS 0.5 percentage point decrease from 1 Apr Waiting to hear
First Direct 0.5 percentage point decrease from 12 Mar 0.5 percentage point decrease from 1 Apr
Halifax 0.5 percentage point decrease by 1 Apr 0.5 percentage point decrease by 1 Apr
Hampshire Trust Bank Waiting to hear Waiting to hear
HSBC 0.5 percentage point decrease from 12 Mar 0.5 percentage point decrease from 1 Apr
Investec Under review Under review
Kent Reliance BS 0.5 percentage point decrease from 1 Apr Waiting to hear
Leeds BS 0.5 percentage point decrease from 1 Apr Under review
Lloyds 0.5 percentage point decrease by 1 Apr 0.5 percentage point decrease by 1 Apr
Metro Bank 0.5 percentage point decrease from 1 Apr 0.5 percentage point decrease from 1 Apr
Nationwide 0.5 percentage point decrease from 1 Apr 0.5 percentage point decrease from 1 Apr
NatWest 0.5 percentage point decrease from 1 Apr
0.5 percentage point decrease from 1 Apr
Newcastle BS 0.5 percentage point decrease from 1 Apr
Under review
NRAM 0.5 percentage point decrease from 1 Apr 0.5 percentage point decrease from 1 Apr
OneSavings Bank Under review Under review
Paragon Under review Under review
Post Office Waiting to hear Waiting to hear
Principality Under review Under review
RBS 0.5 percentage point decrease from 1 Apr
0.5 percentage point decrease from 1 Apr
Sainsbury's Bank 0.5 percentage point decrease from 1 Apr Under review
Santander 0.5 percentage point decrease from 1 Apr 0.5 percentage point decrease from 1 Apr
Secure Trust Bank Waiting to hear Waiting to hear
Skipton BS Under review Under review
TSB 0.5 percentage point decrease from 1 Apr 0.5 percentage point decrease from 1 Apr
Ulster Bank 0.5 percentage point decrease from 1 Apr
0.5 percentage point decrease from 1 Apr
Virgin Money
0.5 percentage point decrease from 1 May 0.5 percentage point decrease from first payment date after 2 Apr
West Brom BS 0.5 percentage point decrease from 1 Apr 0.5 percentage point decrease from 1 May
Yorkshire Bank 0.5 percentage point decrease from next payment date 0.5 percentage point decrease from first payment date after 2 Apr
Yorkshire BS Under review Under review

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.

While there is a chance that we could see slightly lower best-buy mortgage rates in the wake of the cut, rates are already very low. See our First-Time Buyers' Guide or Remortgage Guide for full help and our Mortgage Best-Buys Comparison Tool to find top deals.

What will happen to savings rates?

The base rate cut is yet more bad news for savers – rates have been rubbish 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.

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.

We're speaking to all the major savings providers in the wake of the base rate cut to ask them what they're doing, and will update this story when we know more.

For now Barclays, Halifax, Lloyds, Metro Bank, NationwideOneSavings BankTSB and Yorkshire Building Society have told us that they are currently reviewing their rates.

For a full round-up of the current top picks, see Top Savings Accounts.  

How the savings rate on your existing account will change

PROVIDER CHANGES TO VARIABLE SAVINGS ACCOUNT RATES
AA Waiting to hear
Cynergy Waiting to hear
Bank of Ireland Waiting to hear
Bank of Scotland Waiting to hear
Barclays Under review
Beverley BS Waiting to hear
Birmingham Midshires Waiting to hear
Clydesdale Under review
Co-op Bank Under review
Coventry BS Waiting to hear
First Direct Under review
Halifax Under review
Hampshire Trust Bank Waiting to hear
HSBC Under review
Investec Under review
Kent Reliance BS Under review
Leeds BS Under review
Lloyds Under review
Marcus Under review
Metro Bank Under review
Nationwide Under review
NatWest Some savings accounts will reduce between 20 Apr and 20 Jun, including its Savings Builder which is dropping from 1.5% to 1%
Newcastle BS Under review
NS&I Under review
OakNorth Easy-access savings and ISA rates will reduce for existing customers on 1 May. Rates for notice accounts will reduce for existing customers on 1 Jun (35 day), 1 Aug (95 day) and 1 Sep (120 day)
OneSavings Bank Under review
Paragon Under review
Post Office Waiting to hear
Principality Under review
RBS Some savings accounts will reduce between 20 Apr and 20 Jun, including its Savings Builder which is dropping from 1.5% to 1%
Saga Under review
Sainsbury's Bank Under review
Santander Under review
Secure Trust Bank Waiting to hear
Skipton BS Under review
Tesco Bank Under review
TSB Under review
Ulster Bank Some savings accounts will reduce between 20 Apr and 20 Jun
Virgin Money
Under review
West Brom BS Under review
Yorkshire Bank Under review
Yorkshire BS Under review