Mortgage rates to drop after base rate cut

The Bank of England's Monetary Policy Committee (MPC) has cut the base rate from 0.5 per cent to 0.25 per cent, a new record low.

It means mort…

The Bank of England's Monetary Policy Committee (MPC) has cut the base rate from 0.5 per cent to 0.25 per cent, a new record low.

It means mortgage rates will fall even further, with the Bank revealing it is implementing a new Term Funding Scheme, which will help alleviate the practical problems faced by lenders of trying to lower further rates that may already be close to zero.

Acknowledging this problem, the Bank said: "In order to mitigate this, the MPC is launching a Term Funding Scheme (TFS) that will provide funding for banks at interest rates close to Bank Rate. This monetary policy action should help reinforce the transmission of the reduction in Bank Rate to the real economy to ensure that households and firms benefit from the MPC’s actions."

The cut was announced in order to provide a new economic stimulus to the economy, with more quantitative easing also being announced. The MPC decided such action was necessary after the first month's economic figures after the Brexit vote showed activity had fallen.

While that may just be a temporary shock caused by the uncertainty about the future that arose from the referendum result, the Bank has decided to take no chances and opt for stern action in a bid to prevent a slide into recession. It is the first time the MPC has changed the base rate since cutting it to its previous record low in March 2009, a move prompted by the financial crisis. The MPC was unanimous in voting to cut the base rate and noted that a further reduction remains an option.

There have already been instances of lenders cutting their mortgage rates. Leeds Building Society announced today it is cutting its tracker mortgages by 0.25 per cent.

Commenting on the MPC decision, the Council of Mortgage Lenders noted that the base rate is not the only influence on the cost of mortgages. It observed that the average mortgage rate has dropped from 3.8 per cent to 2.9 per cent since the 2009 cut.

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