What effect will THE bank rate cut have on my finances?

From mortgages to savings to loans to credit cards, Zyla Accountants examine the impact of the quarter-point cut.

A reduction in the base rate from 5.25% to 5% has been voted by the Bank of England. After nearly three years of increases, the rate has been cut for the first time since 2020.

What are the chances of my mortgage getting cheaper?

Most borrowers are on fixed rates, so this won't apply.

UK Finance reports that more than 80% of all outstanding home loans had fixed rates as of last December. Sixty-three thousand were on tracker mortgages with a rate directly tied to the base rate, and 624,000 were on standard variable rates (SVRs).

You can only expect your payments to decrease if you have a tracker mortgage. It is likely that lenders will lower their SVRs, but they are not obligated to do so and could just pass on some of the reduction.

Using UK Finance's figures, the average tracker mortgage was worth £136,512 and had a rate of 6.47%. Taking 0.25 percent off the monthly repayment reduces it to £977 after a £28 cut.

An SVR mortgage typically costs £69,581, with an interest rate of 7.81%, so monthly repayments would drop from £663 to just £64.50 if the full cut is passed on.

The changes to your repayments are likely to take effect in September.

Coventry building society has announced it will reduce rates from 1 September, while Santander has announced the reduction of trackers and SVR-linked deals from 3 September.

What about new fixed-rate mortgages?

Home loans with guaranteed rates, typically two or five years, are priced based on what the money markets think will happen to interest rates rather than the current rate. In any case, Thursday's cut may persuade them that there will be more reductions to come, which could lead to lower prices.

Throughout the year, rates have risen and fallen in line with the money market's expectations and mortgage lenders' appetites. Rates have already fallen in recent days - five-year deals fell below 4% last week - but there could be more to come.

Bank governor Andrew Bailey warned the institution against cutting rates too quickly or too much, so slashing mortgage costs is unlikely.

Is it a good idea to lock in my savings rate right now?

That's right. The returns on savings are generally not entirely dependent on the Bank base rate. Many savers with easy access accounts and others without guaranteed rates will be affected by Thursday's cut.

Interest rates on fixed-savings bonds have fallen due to expectations of interest rate cuts. A one-year account could earn you more than 6% last September, and a three-year deal could earn you just below that. On average, one-year accounts paid 4.64% last weekend, with the best buys paying under 5.5%.

In today's market, the best one-year bond rate is 5.26%, available via the savings platform Raisin. This rate will drop on Friday to 4.96%, and you can expect other top rates to drop soon.

How about loans and credit cards?

The interest rate on most personal loans is fixed, so if you are already borrowing money this way, you will continue to pay it at the original rate. Although new borrowing could be cheaper, rates will remain much higher than they were three years ago and are unlikely to fall significantly.

As the base rate increased, credit card rates increased. Providers won't be obligated to pass on cuts since they're not explicitly linked to it.