Beleaguered homeowners paying sky-high mortgage rates could see payments fall by hundreds of pounds a year after yesterday’s cut to the base rate.
Borrowers have been plagued with crippling mortgage costs since 2022 that have squeezed household budgets.
But they were delivered some relief as the Bank of England’s Monetary Policy Committee yesterday voted to cut the base rate by 0.25 percentage points to 4.5 per cent in a bid to boost the UK’s sluggish economy.
Homeowners on tracker mortgages – which are directly linked to the base rate – will feel the most immediate benefit.
A borrower with a £200,000 25-year mortgage could see payments fall by close to £350 a year, according to broker London & Country.
Lenders may also pass on the improvement borrowers on their standard variable rate (SVR) mortgages.
> What the Bank of England rate cut means for your mortgage and savings
Just hours after the cut, Santander announced it will pass on the full 0.25 percentage point drop to borrowers on its tracker and SVR products from March 3.
While many lenders will have already priced yesterday’s cut in to their fixed-rate deals, brokers expect more rate falls to come.
Jonathan Handford, of estate agent Fine & Country, said: ‘Lower rates have the potential to trigger a rate war, with banks and lenders slashing rates to remain competitive.’
Swap rates – which are used by lenders to price deals and reduce lending risk – have already dropped in the past few weeks, which leaves room for banks to cut rates further.
Halifax on Wednesday slashed rates by as much as 0.30 percentage points while HSBC yesterday dropped rates across selected fixed-rate deals.
These changes will force the hand of other lenders, said David Hollingworth, of London & Country. Brokers warn, however, that borrowers may have to wait before the rate cut starts to trickle down.
Markets are expecting a total of four base rate cuts this year, which is good news for fixed-rate deals as they are priced on market outlook.
This is set to boost confidence and spur prospective buyers into action if they had been waiting on the sidelines for lower borrowing costs.
While rates are trending downwards, they are still higher than they were just three years ago. This will pummel swathes of homeowners who are this year rolling off fixes and are set to remortgage.
The average two-year fixed rate residential mortgage yesterday sat at 5.50 per cent, down from its peak of 6.86 per cent on July 26, 2023, according to rate scrutineer MoneyfactsCompare. A five-year fix was 5.30 percentage points compared to a height of 6.51 per cent on October 20, 2022.
