As widely anticipated, the Bank of England has slashed rates to just 0.25%.

What’s the latest?

The Bank of England has cut interest rates to a new record low of 0.25%. The 0.25% reduction to the Bank Rate is the first change for more than seven years.

It will save homeowners with a £200,000 variable rate mortgage around £30 a month if lenders pass on the cut in full.

Why is this happening?

The cut has been made to help shore up the UK’s economy following the country’s decision to leave the European Union.

Recent survey data suggests there could be a significant economic slowdown in the third quarter of the year.

Reducing interest rates helps to stimulate growth as it lowers companies’ borrowing costs, which in turn encourages investment and hiring among firms.

The Bank also announced a package of measures aimed at stimulating the economy, including the purchase of £10bn of corporate bonds and £60bn of government bonds and a new funding scheme for banks.

A pot of money in front of a house

Who does it affect?

The reduction is potentially good news for the estimated 3.8 million homeowners who have a variable rate mortgage. Among these, the 1.5 million who have a tracker mortgage, which moves up and down in line with the Bank Rate, should automatically benefit from the cut, unless their deal is subject to a minimum rate that has already been reached.

But the situation is less clear-cut for people with standard variable rate mortgages, as lenders have more discretion with these loans over how much, if any, of the interest rate cut they pass on.

And the rate cut is bad news for first-time buyers saving to put together a deposit, as they are now likely to see the returns they earn on their money reduce further.

Sounds interesting. What’s the background?

The rate cut could act as a shot in the arm for the UK’s housing market, which is showing signs of slowing down due to the uncertainty caused by the Brexit referendum.

Mortgage rates were already at record lows before the latest cut to the Bank Rate, and they could now fall further still, helping to ease the affordability pressures that have built up follow strong house price growth in recent years.

The average cost of a fixed rate mortgage is currently 2.48%, down from 4.79% in March 2009, when interest rates were last cut.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Swap rates are at all-time lows and we expect to see even more competitive fixed rates in coming days.  

“It is already possible to fix for two years at less than 1% and for five years at less than 2%. These are astonishingly-low rates but they could go cheaper still.”

Top 3 takeaways

  • The Bank of England has cut interest rates to a new record low of 0.25%.

  • The 0.25% reduction to the Bank Rate is the first change for more than seven years.

  • It will save homeowners with a £200,000 variable rate mortgage around £30 a month, if lenders pass on the cut in full.

Find out more with our 5 things to know about the interest rate cut

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