Bank of England issues update for anyone with a mortgage

If inflation remains in check, he said Bank might be able to be “more activist” over reducing borrowing costs.

This announcement caused the pound to fall by nearly one per cent against both the US dollar and the euro.

The news is particularly significant for the 2.2 million people with fixed mortgage deals set to expire over the next 18 months.

Bailey’s comments mark a departure from his previous stance of gradual rate reductions. The Bank cut rates to five per cent from 5.25 per cent in August, the first reduction since March 2020.

Financial markets now see a 61 per cent chance of another rate cut in December, following an expected reduction next month.

Interest rate cuts have a significant impact on both mortgage and savings rates.

Currently, the average two-year fixed mortgage rate stands at 5.39 per cent, a stark increase from 2.34 per cent in December 2021.

Conversely, the top one-year fixed savings rate is around five per cent, up from about two per cent in 2021.

For borrowers, falling interest rates are welcome news, while savers may face reduced returns.

Major lenders have recently announced significant cuts to their mortgage rates. Halifax has reduced selected residential remortgage rates by up to 0.24 percentage points, effective from 4 October. Santander has slashed rates by up to 0.29 percentage points for residential mortgages and up to 0.17 percentage points for buy-to-let properties.

Barclays is now offering a five-year fixed rate for purchase at 3.92 per cent with no fee, for borrowers with at least a 40 per cent cash deposit. HSBC has introduced competitive deals at higher loan-to-value ratios, including a five-year fixed rate for purchase at 4.54 per cent with a £999 fee for those with a 10 per cent deposit.

These rate reductions reflect the growing competition among lenders and the anticipation of further Bank of England rate cuts. The moves are likely to provide some relief for homeowners and prospective buyers facing high borrowing costs.

Virgin Money has joined the trend, cutting selected residential fixed rates by up to 0.25 percentage points from today, October 3. Their new offerings include a five-year fixed rate for purchase at 4.49 per cent with a £995 fee for borrowers with a 10 per cent deposit.

MPowered Mortgages has reduced selected fixed rates by up to 0.3 percentage points, offering a three-year fixed rate for home purchase at 3.75 per cent with a £999 fee for buyers with at least a 40 per cent deposit.

The Mortgage Works, Nationwide’s specialist lending arm, has slashed buy-to-let rates by up to 0.55 percentage points.

David Hollingworth from London & Country Mortgages commented: “Further drops to Bank of England Bank Rate are priced into fixed rates already so we may see the very lowest fixed rates still edging down rather than diving but at the moment competition is helping to add further improvements.”

Markets anticipate at least one more rate cut before year-end, likely at the next Monetary Policy Committee meeting on November 7, potentially lowering rates to 4.75 per cent.

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The upcoming Budget announcement could have significant implications for the broader economic outlook and, consequently, interest rate policies.

Bailey highlighted the Bank’s close monitoring of geopolitical developments, particularly in the Middle East.

He noted that while oil prices haven’t seen dramatic increases since the Hamas attack on Israel, the situation remains volatile.

Bailey warned that although markets are currently stable, “there’s also recognition there’s a point beyond which that control could break down if things got really bad.