Bank of England Cuts Rate to 4.75%: Impact on Mortgage Holders

On 7 November 2024, the Bank of England's Monetary Policy Committee (MPC) convened and voted by a majority of 8–1 to reduce the Bank Rate by 0.25 percentage points, bringing it down to 4.75%. This decision was influenced by a notable decline in inflation, which fell to 1.7% in September, dipping below the Bank's 2% target for the first time in over three years. The reduction aims to stimulate economic activity by making borrowing more affordable, thereby encouraging spending and investment.

According to UK Finance, as of 2023, approximately 26% of mortgage holders were
on variable rates, which include tracker and SVR mortgages. This equates to around
2 million borrowers. Therefore, these individuals are likely to benefit directly from the
recent rate cut.

Impact on Mortgage Holders

• Tracker Mortgages: These mortgages are linked directly to the Bank Rate.
  Consequently, a 0.25% reduction in the Bank Rate translates to a 0.25% decrease in
  the interest rate for tracker mortgage holders. For instance, if a borrower has a
• £200,000 mortgage with a 25-year term, this reduction could lower monthly
  payments by approximately £25.
• Standard Variable Rate (SVR) Mortgages: SVR mortgages are set by individual
  lenders and can change at their discretion. Following the Bank Rate cut, several
  major lenders have announced reductions in their SVR:
• Nationwide: Decreased its SVR from 7.99% to 7.74%, effective 1 September
  2024.
• Halifax: Reduced its SVR from 8.74% to 8.49%, effective 1 September 2024.
• Santander: Lowered its SVR by 0.25%, bringing it down to 7.00%, effective 3
  December 2024.
  
  

Average Savings for Borrowers

The exact savings for borrowers depend on the size of the mortgage and the
remaining term. It's important for borrowers to review their mortgage terms and
consult with their mortgage broker or lender to understand the specific impact of the
rate change on their repayments.

I

Fixed-Rate Mortgage Holders

Borrowers on fixed-rate mortgages will not see an immediate change in their
payments due to the Bank Rate cut, as their rates are locked in for the duration of
the fixed term. However, upon renewal, they may encounter different rates
influenced by current market conditions.

Volatility in Swap Rates and Fixed-Rate Mortgages

Swap rates, which are agreements between financial institutions to exchange
interest rate payments, play a crucial role in determining fixed mortgage rates.
Recent volatility in the swap rate market has led to fluctuations in fixed-rate
mortgage offerings. Lenders rely on swap rates to hedge against interest rate
changes; when swap rates are unstable, it becomes challenging for lenders to price
fixed-rate products competitively. Stability in the swap rate market is essential for
consistent and potentially lower fixed-rate mortgage options.

In summary, the Bank of England's recent rate cut offers immediate relief to
borrowers with tracker and SVR mortgages, while fixed-rate mortgage holders
remain unaffected in the short term. The broader mortgage market continues to be
influenced by factors such as swap rate volatility, which affects the pricing and
availability of fixed-rate products.

f you would like to find out more about your
current rate please contact Step By Step Financial Solutions on 0345 646 1941