The Bank of England has cut the base interest rate to 0.1 per cent – the lowest it's ever been in the Bank's history. The drastic measure comes as the Covid-19 crisis shows no signs of slowing down and the UK is advised to prepare for a 'sharp and vast' economic shock, which may or may not be temporary.
What does this extraordinary move mean for you if you are a current or prospective mortgage borrower? The most immediate beneficiaries of this move will be people on variable rate and tracker mortgages: they will certainly see a reduction in their mortgage rates, perhaps by as much as 0.15 per cent.
People on fixed rate mortgage are unlikely to see immediate reductions in rates, although it remains to seen whether mortgage payers facing financial difficulties will be offered lower rate mortgages as part of the banks' cooperation with the chancellor's recently announced forbearance measures designed to protect home owners from the worst of the coronavirus impact.
The biggest question, however, is if, when, and how the government intends to help small businesses that are hardest hit financially by the Covid-19 outbreak. Without some kind of a financial package from the most vulnerable businesses, the all-time low borrowing costs will do nothing for them. Moreover, even rock-bottom rates will not come as a relief to people already being laid off and facing the prospect of months without work. Help for businesses and their staff combined with the interest rate cut could just make the difference needed.
If you are about to apply for a mortgage, should you go for a variable rate rather than fixed rate? Right now, you should strongly consider it: take a look at the online mortgage specialist Habito's mortgage comparison tool below to get an idea of different mortgage rates.