What does the Bank of England base rate cut mean for my mortgage?

The Bank of England has changed its base rate for the first time in seven years

The Bank of England has changed its base rate for the first time in seven years - Credit: PA Wire/Press Association Images

The Bank of England has halved its base rate and cajoled banks to pass on the savings to their customers, but what does this mean for mortgages?

Last Thursday the Bank of England announced it had reduced its base rate for the first time in seven years from 0.50 per cent to 0.25 per cent.

That’s bad news for your savings account but potentially good news for your mortgage.

The 1.5 million people who are currently on tracker mortgages should see a small monthly saving, so someone on a £150,000 tracker mortgage that will translate as £20 extra a month in the kitty.

Beware though, a small number of these mortgages have what’s ‘collar’, meaning they can’t fall beyond a certain level.

If you’re looking to take out a new mortgage the rate cut won’t make much difference as rates are already so low.

In fact, it might be better to take out a fixed rate mortgage over a tracker. Many fixed deals are currently lower than the top trackers, and they’ll give you the added guarantee that your repayments will stay low for years to come.

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For those on a standard variable rate (SVR) the news is less good. Their rates can be four times higher than fixed rates and are at the lenders discretion so won’t automatically pass on the discount to you.

If you can afford to switch from an SVR to a fixed rate to take advantage of the low rates you would be well advised to do so now, although those with a poor credit rating may find themselves stranded on these higher rates.

Bank of England governor Mark Carney said that banks had “no excuse” not to pass these savings on to their customers.

Santander has announced all their mortgage products linked to the base rate will reduce by 0.25 per cent, effective as of September 1. Their SVR mortgages will reduce by 0.25 per cent from 4.74 per cent to 4.49 per cent.

Barclays has pledged to pass on the cut for both tracker and SVR mortgages from August 5 for new customers, but existing customers will have to wait until September 5.

Lloyds will give customers on tracker mortgages the 0.25 reduction from September 1, but their SVR rates remain under review.

RBS and NatWest have announced they will pass on the 0.25 per cent cut for both products, but are yet to set a date.

Ross McEwan, RBS CEO said: “We’re passing on the base rate cut in full to our valued mortgage customers on our standard variable rate.”

He added: “We’re open for business and ready to lend responisbly to homebuyers.”

Guy Anker, managing editor at MoneySavingExpert.com, said: “We implore lenders to pass on these savings to borrowers as soon as possible – though inevitably some bad boys will delay.”