Interest rates have been fallen below 5% for the first time since summer last year after the Bank of England decided the economy was healthy enough for another cut.
The Banks governor Andrew Bailey announced earlier this afternoon that its Monetary Policy Committee had decided on a reduction of 0.25%, bringing the figure to 4.75%.
Its the second time the rates have been reduced in four months, after they were cut for the first time in four and a half years at the beginning of August.
Homeowners will be relieved after the dramatic few years that followed the Covid lockdowns, where the Bank increased interest rates 14 times in an effort to control inflation.
The decision means repayments on many mortgages will fall but it could also result in less welcome news for savers.
What does this mean for mortgages?
If youve got a tracker mortgage, meaning one thats tied to the base rate decided by the Bank of England, your repayments will go down each month.
You may see a reduction if you have a standard variable rate (SVR) mortgage, too. Even though these deals are decided by your lender, they often also move according to the base rate.
However, youll have no such luck if you opted for a fixed-rate mortgage, since youve agreed to pay the same amount for a certain amount of time.
If youre looking to remortgage, theres a strong chance the new fixed rate will be higher than the one you were on originally, since the base rate is still at its third highest level for the past 15 years.
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Stephanie Daley of mortgage advisor Alexander Hall said: Weve already seen mortgage rates trending downwards in recent months due to a higher degree of mortgage market stability and many within the mortgage sector will have already been anticipating today’s base rate cut.
As a result, it’s unlikely we will see an immediate reduction in the current rates on offer to homebuyers and movers.
However, todays cut will bring further confidence to those looking to move, many of whom had previously delayed their plans due to higher rates, and this release of pent up demand will help to cultivate further property market positivity.
What does this mean for savings?
Savers have had a decent time in the past few months, when inflation was low but interest rates remained high.
Thats because banks tend to look at the base rate when deciding their own savings rates, and lower inflation meant people could stash more money away with a higher return.
But its now likely that those rates will also fall following todays announcement.
So, now is a good time to go hunting for some decent deals if youre looking for somewhere to place your savings.
Both Trading 212 and Moneybox offer 5.17% cash ISAs, though the Moneybox option only allows three penalty-free withdrawals each year. More information is available on MoneySavingExpert here.
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