What the latest interest rates change means for your mortgage, savings and bills
The Bank of England (BoE) announced its decision to cut interest rates to 3.75 percent on Thursday, its fourth cut of the year.
In December’s vote, the bank’s nine-member Monetary Policy Committee (PPC) showed only slight fluctuation compared to the last pre-Budget period in November; A 5-4 split with Gov. Andrew Bailey as the key switcher, then a split opting to wait, turned into a 5-4 split this time in favor of cuts.
It is cutting the base rate to its lowest level in almost three years, following falling inflation rates, weak economic figures and rising unemployment.
Here’s a quick summary of what the current interest rate might mean for you:
What does interest rate mean in housing loans?
Generally speaking, as rising interest rates over the last few years have meant mortgage repayments have also increased, the opposite is also true: lower rates, lower repayments. However, there are a few important points to note.
First, it is only the interest on repayments that needs to change; Your capital repayments will naturally decrease the more you pay off your mortgage. Secondly, the base rate is not the rate you are required to charge for your mortgage by your bank or lender; They base their rates on the BoE rate, but not necessarily the same.
But more than half a million people have a mortgage that follows the BoE interest rate and these will see an immediate change. Many more have fixed-term agreements that expire and must be renegotiated every year; Almost 2 million homes are expected to seek renewed deals in 2026.
If you have a fixed term on a mortgage scheme you won’t see a change in any case until it ends and you start a new deal, but if you’ve already finished and moved to a standard variable rate (SVR) deal you may see a change in your repayments.
New mortgage products tend to be based on swap rates (market agreements based on future expectations of interest rate movements) rather than the current bank rate; For this reason, there has been a recent scramble among lenders who have been lowering their rates even before today’s cut.
What about savings accounts?
If you have money in your savings account, it’s the other side of the seesaw: falling rates mean you’ll earn less interest.
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Terms and conditions apply.
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As there is a fierce fight for customers between banks and building societies, it is still possible to get good deals if you are happy to lock up money for a fixed period or contribute regular amounts, with few offering more than 4 per cent until recently.
However, some are likely to be removed from the market or their rates changed in the coming days; And many of the best deals on easy-access accounts have been running below 4.5 percent for some time.
There are always terms and conditions that need to be met, so make sure the accounts you open suit your circumstances, but there remains the opportunity to save and earn money at a rate better than inflation, which currently stands at around 3.2 per cent.
But be aware of the amount of interest you can earn without being taxed. If the interest rate on your savings account is not fixed, banks may change the rate, which you can increase or decrease at any time.
A tax-efficient way to save is to use a Cash ISA; Here everyone has (for now!) a personal allowance of £20,000 each year, which will soon be reduced to £12,000, with the remaining £8,000 earmarked for tax-free investment.
Invoices and refunds
Credit card repayments and other types of personal loans are also affected by interest rates, of course, because the amount they require for borrowing may vary.
For credit card users (and especially for Buy Now Pay Later deals), it’s always ideal to pay the full amount each month if you can, to avoid being charged interest; Depending on your circumstances and account type, it can be one of the more costly ways to borrow money.
Again, lenders may not change their rates immediately after the base rate change, but if you think your repayments could or should be lower, contact them to consider your options.
