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Base rate cut: good news for mortgages?

By Joel Stanier

1 June2021

Family home in UK Last week, the International Monetary Fund (IMF) called for a further base rate cut to help the UK economy pull itself out of recession. The idea is that if borrowing becomes cheaper, consumers will be able to spend more and the economy will eventually return to growth.

A large part of this may come down to mortgages. If the Bank of England does decide to cut the base rate, hesitant would-be homeowners may decide that now is the time to buy a home, with interest rates already significantly lower than they were a few years ago.

However, research by MoneySupermarket.com indicates that not everyone is in favour of a base rate cut. That's largely because savers, who are already struggling to get a good return on their money, would have to put up with even lower interest rates.

Overall, just under 60% of respondents to the survey felt a base rate cut would be a bad idea, because of concerns about either savings rates (44.6%) or inflation (15.2%). Around 35% felt it would be a good idea because of lower mortgage payments (15.4%) or the impact it could have on economic growth (19.2%).

Kevin Mountford, head of Banking at MoneySupermarket.com said: "It's no surprise savers have come out fighting against the proposed rate cut as they have suffered from low rates since the base rate fell to a record low in March 2009, especially those who relied on the savings interest to provide a regular income. The majority of borrowers on the other hand have benefited from the low interest rate environment which has resulted in many people having lower monthly mortgage payments."

He goes on to point out that a further base rate cut might not actually mean good news for homeowners. "A base rate cut would not be good for banks as it could make it more difficult for them to be flexible on pricing, and as we have seen more recently on mortgages, it could give them the perfect opportunity to decouple rates from Bank of England base rate altogether."

Image iStockPhotos / majana

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Tags: mortgages, International Monetary Fund, IMF, economy, recession, Bank of England, MoneySupermarket, base rate

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