Bank of England cuts interest rates to 4.25%

Kevin Peachey
Cost of living correspondent

A cut in interest rates lowers the cost of borrowing money but, with mortgages, it’s a bit more complicated.

If the Bank does indeed cut the base rate, nearly 600,000 homeowners on tracker deals would immediately pay less in monthly repayments.

Those on standard variable deals must wait to see how their lender responds.

However, eight in 10 mortgage-holders have fixed deals. Their rate only changes when they renew a deal, usually after two or five years, and perhaps shop around for a new one.

Here, lenders have been cutting mortgage interest rates on new deals in the last few weeks, engaging in a mini price war.

That’s because the markets and, in turn, lenders have anticipated base rate cuts and “priced in” those changes to their current deals.

So, even if the Bank cuts interest rates today, there’s no guarantee fixed mortgage rates will go down further.

That will largely depend on the mood music and language coming from the committee on their appetite for further rate cuts as the year goes on.