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Even before today's cut, interest rates were at their lowest level in the Bank of England's 300-year history. Following the 0.5 percentage point cut the base rate now stands at 1%, but what will it mean for your finances?
I have a tracker mortgage. Will my repayments fall?
The latest cut means a borrower with a £120,000 loan tracking 0.5% above the base rate will see their repayments fall by £29 a month, as long as their mortgage does not have a collar.
This is a clause in the terms and conditions which sets a lower limit on a borrower's pay rate. A handful of lenders have collars, most of which kicked in before last month's rate cut, so if your repayments were reduced following January's change you will probably see them fall again this month.
Most mortgages do not have a collar in their terms and conditions, which means rates will carry on going down as long as the base rate falls, even if it reaches 0%. Several thousand borrowers lucky enough to have taken out a C&G mortgage in 2007, which had a rate pegged 1.01% below the base rate, will now pay nothing for their loan.
Use our calculator to find out how much your mortgage repayments will be.
What if my loan is linked to my lender's standard variable rate?
Most lenders are not contractually obliged to pass on the cut, so borrowers will have to wait to see what they decide to do. Last month only 26 out of 90 lenders passed on the full cut, and some of those didn't cut their rates after December's reduction. According to moneyfacts.co.uk only six lenders have passed on every cut in full: Cheshire and Derbyshire building societies, Lloyds TSB, C&G, Bradford & Bingley and Intelligent Finance. Prior to today's cut Stroud & Swindon and Chesham building societies had reduced their SVRs by just 0.75% since last summer.
Some lenders will have to cut rates because their terms and conditions state that the difference between their SVR and the base rate cannot exceed a certain level. Nationwide and Skipton building societies and Lloyds TSB are in this position.
I have a fixed-rate mortgage. Will my repayments change?
For around half of borrowers the base rate change will have no impact because they are on fixed-rate mortgages. Anyone who locked in last year, when fixed-rates were on offer at around 5.49%, may now be wondering if it is worth paying the early repayment charges and jumping ship to a new deal. Our calculator will show you what type of rate you need to achieve to make remortgaging worthwhile, but you should bear in mind that unless you move to another fixed-rate loan your repayments could at some point start to creep back up again.
I don't have a mortgage yet. Will this help me?
It depends on your circumstances. The base rate cut is unlikely to make lenders less reluctant to offer loans to those with small deposits, so first-time buyers will still struggle to get a mortgage. Earlier this week building societies warned that lower rates would make it harder for them to attract the savings deposits they use to fund mortgages.
Any new, cheaper deals offered in the coming weeks are likely to still be targeted at borrowers with hefty deposits – the best rates are generally being offered to those with at least 40% to put down.
I am a saver. Should I expect bad news?
Yes. Moneyfacts.co.uk estimates that after last month's cut 95 out of 119 savings providers cut rates, and the latest reduction is likely to mean lower interest. If you have money to put by, and are happy to lock it away, your best bet may be to grab one of the current best-buy fixed-rate accounts before they disappear. The rates on these are well below the offers in excess of 7% available last September, but much better than those on many variable rate accounts, some of which are edging dangerously close to 0%.
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