Bank of England’s Interest Rate Cut Could Be Good News for Scottish Borrowers
August 4, 2016
The Bank of England has announced its first reduction in the base rate of interest since early 2009 in response to significant weakening of the UK economy.
Having been a 0.5 per cent for more than seven years, the Bank has decided to take action and reduce its base rate to 0.25 per cent in the hope of adding some stimulus to the national economy.
The Bank’s base rate is a key factor determining the cost of borrowing throughout the country and, while the change has been prompted by fears about the state of the British economy, it could be good news for millions of consumers.
Mortgage borrowers in particular might have cause to welcome the Bank’s decision, with interest rates on thousands of mortgages set to come down in the coming days as a direct result of the change.
There are understood to be between 1.5 million and 1.8 million UK households who have tracker mortgages in place, which are designed specifically to adjust in line with the Bank of England’s base rate of interest.
So for tracker mortgage holders the news of a reduction is certainly positive in the short term and anyone with a variable-rate mortgage could also be in line for a reduction in their monthly outgoings.
All of which could help to ease some of the financial burdens currently being shouldered by many thousands of indebted Scots.
Although, the Council of Mortgage Lenders (CML) has been quick to respond to the Bank of England’s announcement and point out that the change doesn’t immediately mean that all mortgage rates throughout the UK will be reduced.
Approximately half of all mortgage borrowers in Britain are entered into fixed-rate mortgage deals, which means that any benefits they might see as a result of the reduction in the base rate will only be a prospect once their existing fixed-rate deals come to an end.
The Bank of England’s decision-making Monetary Policy Committee (MPC) took the base rate of interest down from 1 per cent to 0.5 per cent in March 2009 and then kept it entirely unchanged thereafter until this month.
“We took these steps [to reduce the base rate] because the economic outlook has changed markedly,” explained Mark Carney, the Bank’s governor in a statement.
“By acting early and comprehensively, the MPC can reduce uncertainty, bolster confidence, blunt the slowdown, and support the necessary adjustments in the UK economy.”
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