The Bank of England‘s decision follows on the heels of the Federal Reserve in the US which dropped base rate by 0.5% last week in response to the coronavirus. The European Central Bank is due to announce its move tomorrow.
Alex Maddox, capital markets & digital director at Kensington Mortgages commented: “The market was predicting a 0.5% rate cut with a 60% probability so this is not a surprise.
“It is likely that this is just one of many actions that government and the Bank of England take to provide support to the economy.
“For customers with tracker mortgages this rate change will be welcome and reduce their monthly payments very quickly. Fixed rates will not drop as quickly though, as lender’s funding costs may still stay high even after this rate cut.”
Andrew Montlake, managing director of mortgage broker, Coreco, said: “For a central bank to cut rates on the morning of a Budget is an extraordinary move that reflects the gravity of the Covid-19 situation unfolding.
“Over the past 48 hours a growing number of lenders have come out and said they will support homeowners with payment holidays due to the coronavirus threat but this takes things to a whole new level.
“Borrowers on a tracker rate will see an immediate benefit but savers will inevitably feel the squeeze.
“Strangely this does not necessarily mean rates will come down as lenders will be pricing in the fact that their own staff levels may be low in the weeks and months ahead and they may not be able to cope with the increased demand.
“Lenders will be in a tailspin this morning as they seek to get their heads around this drastic move from the Bank of England. We are living in truly unprecedented times.
“On a commercial level, this emergency rate cut by the Bank of England will put even more pressure on lenders that are already struggling with slim margins.”
Nick Chadbourne, CEO of conveyancing solutions provider LMS, said the announcement seems to be aimed purely at the markets, with little upside for smaller businesses and consumers.
He commented: “Businesses are unlikely to invest more in the immediate future, and we won’t see consumers running straight to the shops – this will probably do more harm than good, as people are likely to worry more than before.
“Markets might see a short-term uplift, but this situation is here to stay – it’s hard to understand why the Bank of England has chosen to announce this cut just hours away from the Budget, and difficult to see what it hopes to achieve in the long run.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, noted that this is a bold and decisive move from the Bank of England.
He commented: “Swap rates have tumbled in recent days and both the reduction in base rate, plus lower Swap rates, will lead to even cheaper mortgage products.
“We would expect five-year pricing to fall close to its previous record low of 1.29% in 2017 (for a five-year fix from Atom Bank). The big question is could they fall below 1%?”
Rob Griffiths, director at the Mortgage Market Alliance, said: “A cut to Bank Base Rate is always significant, however when it’s an emergency measure taken outside the normal Monetary Policy Committee meetings, then it’s doubly significant.
“The Bank clearly wants to stimulate the flow of lending out to consumers and businesses and for those seeking a new mortgage or looking to refinance, this is now an opportune time to do so.
“While many lenders’ cost of funds and pricing will not be directly linked to Bank Base Rate, this is still likely to filter through to mortgage rates at some level, which means what was an already highly-competitive market has just got even more so.
“There are likely to be considerable savings available, especially if the borrower is sat on their lender’s standard variable rate, and there are likely to be a considerable number of changes in mortgage pricing in the days to come.”
