The Bank of England have today cut their Base Rate of interest to 0.25%, following August’s meeting of the Monetary Policy Committee.
The new rate represents a record low, and is the first rate cut since 2009, following the global recession.
“Whilst not good news for savers, who will see diminished returns going forwards, it could be the antidote required to prevent a housing market crash” said Andy McBride, Business Development Director at Contractor Mortgages Made Easy.
“Mortgage rates will likely reduce further in the short term, keeping the market warm amidst uncertainty following Brexit. Even if, worst case, rates remain the same, it will inspire a little more confidence in those looking to move house, particularly first time buyers.”
In a further move designed to keep the nation’s economy buoyant, the Bank of England have also pledged to buy a further £60bn of government debt, taking the total size of its quantitative easing scheme to £435bn.
The Bank also announced it would be buying £10bn of corporate bonds, alongside its biggest cut to growth forecasts in history.
“The Bank started forecasting the growth of the economy back in 1992” adds McBride. “It has today cut the prediction for 2017 from the 2.3% expected in May, to just 0.8%, following the fallout of June’s EU referendum.”
Whilst this will spell bad news for those with significant sums in reserve, there is, according to McBride, the potential for even better value in the mortgage market.
“Whilst generally mortgage rates are not directly linked to Base Rate, one of the big fears for the economy in the short to mid-term is that the housing market could crash. With lower interest rates on offer, banks will be keen to carry on lending to homeowners in order to keep the wheels turning, as the government quantitative easing programme will allow banks to keep their own borrowing costs down.”
There is, however, a warning for those looking to apply for a mortgage imminently, as McBride explains.
“Despite the perceived improvement in lending rates as the result of a base rate cut, lenders have been slashing their margins in order to offer the current record-low rates, and further downward pressure on rates may well be short-lived.
The Bank of England have a trick up their sleeve in the form of ‘Term Funding’, a revamped version of the previously named ‘Funding for Lending’ scheme.
Our Product team are working with lenders to understand the impact of this latest stimulus measure, and will be announcing further product releases in due course.”
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