For months we’ve been told it’s a case of “if” not “when” the Bank of England puts up base rates, with an eventual hike in consumer mortgage rates inevitable. Yet amazingly officials have hinted they could actually cut the rate to an all-time record low.
Newly-published minutes of the Monetary Policy Committee show members discussed the possibility of a base rate cut during its June meeting. That would almost certainly mean a drop from the current 0.5 percent to 0.25 percent.
Officials have put off a firm decision until they get a better idea of how the “funding for lending” scheme works out. That’s a new program by which the Treasury lends money to banks at low interest rates on the condition that the banks then increase their own lending, particularly to small businesses.
In theory, a base rate cut would be good news for those on variable deals and a shock for those on fixed rate mortgages who’d assumed they would eventually be rewarded for their caution as base rates rose.
In practice, there’s no guarantee that banks would pass on the rate cut. For example, HSBC recently began offering its lowest every five-year fixed deal at 2.99 percent, but other lenders have shown no sign of following suit. That suggests that with rates already so low, and lenders still cautious about potentially risky lending, the Bank of England can’t rely on cut-throat competition in the market.
The lesson for homeowners may be that in whatever direction the Bank base rate is tweaked, any changes in the foreseeable future are still unlikely to be dramatic. With that in mind, the lowest number is not necessarily the best mortgage rate. Instead buyers need to pay close attention to associated fees and remortgaging costs, while making sure that both the deposit and the annual repayments on their proposed deal are genuinely affordable.
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