Impact of August Rate Reduction on Savings and Home Loans
Bank of England Interest Rate Cut Boosts Mortgage Borrowers, Pushes Down Savings Rates
In August 2024, the Bank of England (BoE) announced a 0.25 percentage point reduction in the base rate, marking the beginning of a gradual easing cycle that lowered the rate to 4.0% by August 2025[1][3][4]. This move was intended to support the weak private sector labour market while managing still-sticky inflation[1].
Mortgage Rates on the Decline
Since the August 2024 cut, mortgage rates have been decreasing in response to the base rate reductions. Over the course of the easing cycle, the average standard variable mortgage rate (SVR) has dropped substantially by about 0.74 percentage points[4]. Borrowers on typical two-year fixed rates currently benefit from considerably lower monthly payments than those on the SVR, with a difference of £372 per month on a £250,000 mortgage over 25 years[4].
Some lenders have also relaxed mortgage stress tests, making it easier for borrowers to qualify for mortgages. This, combined with the rate cuts and government schemes like the permanent Mortgage Guarantee Scheme, has improved affordability and buyer confidence[4].
Savings Rates Suffer
While the focus has primarily been on borrowing costs and mortgage rates, there is no explicit information about how the August 2024 interest rate cut affected savings rates directly. However, it is a common market behavior for savings rates to fall when the base rates are reduced, as lower base rates reduce the returns banks can offer to savers[2][3].
Looking Ahead
Any borrower looking at their options for peace of mind could lock into a fixed mortgage early. The Bank of England's next decision will be released in November, and finance expert Rachel Springall predicts possible interest rate cuts[5].
Meanwhile, easy access accounts have dropped 0.07 percentage points since the August rate cut, now at 3.08%, while easy access ISAs have fallen by the same amount to 3.29%[6]. Notice ISAs have dropped 0.14 percentage points to 4.08%[6].
Despite these rate cuts, mortgage rates are still much more expensive than they were before the crisis began and in the pre-Mini Budget period. The average SVR has reduced from 8.16% in August to 7.99% by September, but a typical mortgage being charged the current average SVR of 7.99% would pay £383 more per month compared to a typical two-year fixed rate[6].
The BoE's decision not to cut interest rates has put a small dent in optimism, but the overall trend suggests that borrowers may continue to see mortgage rates fall further in the coming months, while savers are urged to review their savings accounts to ensure they're still paying a competitive return.
[1] Bank of England (2024). Monetary Policy Report, August. [2] Financial Times (2024). Bank of England's interest rate cut pushes down savings rates. [3] BBC News (2024). Bank of England base rate cut: What it means for you. [4] Moneyfacts (2024). Mortgage Market Review: August 2024. [5] Moneyfacts (2024). BoE interest rate cut possible in November, says Moneyfacts. [6] Moneyfacts (2024). Savings rates fall in response to BoE's August rate cut.
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