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The Bank of England has today reduced its base rate from 5.25% to 5%, providing a boost to home buyers and mortgage holders.
The Bank's nine-person Monetary Policy Committee (MPC) voted 5-4 in favour of cutting the rate by 0.25 percentage points.
Read on to find out what the long-awaited rate cut means for you, whether you're buying a home, are due to remortgage, or trying to get the best return on your savings.
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After almost exactly a year at 5.25%, the base rate has been reduced to 5% with immediate effect.
A reduction in the rate had been anticipated earlier this year but was delayed due to stubbornly high inflation.
Over the course of this week, expectations of a rate cut had been building, and the MPC has now voted by the finest of margins to make it happen.
In its report, the MPC said that the 'impact from past external shocks has abated' and that 'some progress has been made in moderating the risks of inflation'.
If you're coming up to remortgage at the end of a fixed-term, today's rate cut is good news.
Over the past couple of weeks, some lenders have reduced their rates in anticipation of a base rate cut, and more are now likely to follow.
This marks an important first step in bringing mortgage rates down, but there's a long way to go.
The cut will likely bring some mortgage deals for people borrowing at 60% loan-to-value below 4%. However, this will still be more than double the rate that some homeowners are used to paying, so repayments will still increase significantly for many people when they remortgage.
If you're on a variable rate mortgage, your rate should fall. Trackers, which are linked to the base rate, will drop by 0.25 percentage points. Standard variable rate (SVR) mortgages and discount mortgages will fall when individual lenders reduce their SVRs in response to today's announcement.
It's been a frustrating year for those looking to move home, with the high cost of borrowing resulting in many people delaying moves.
Today's announcement is good news for first-time buyers and home movers, and it may free up the market a little. Perhaps most importantly, it's a signal that interest rates are likely to be heading in the right direction, with the potential of further cuts in the future.
The MPC has urged caution in the short term. In its report, it said today's decision was 'finely balanced' and it will 'not cut rates too much or too quickly' as it needs to ensure it 'puts the period of high inflation firmly behind us'.
Mortgage rates are likely to fall in the wake of this announcement, but they had been dropping over the past few weeks already.
In the past month, average rates have dropped from 5.95% to 5.77% on a two-year fix, and 5.53% to 5.39% on a five-year fix. You can find the latest market-leading deals in our guide to the best mortgage rates for August 2024.
We'll likely see lots of chopping and changing in mortgage deals over the coming weeks. If you're thinking of buying a home or are due to remortgage, it's worth speaking to a mortgage broker.
A broker will be able to find you the best deal for your circumstances, and if rates drop while you're in the process of applying, they may be able to shift you on to a cheaper deal.
Property experts have been having their say about what the rate cut might mean for mortgage rates over the coming months.
Matt Smith of the property portal Rightmove says: 'While those looking to take out a mortgage soon shouldn’t expect to see drastically lower mortgage rates, we would expect the recent downward trend to continue.
'This sets us up for hopefully further cuts to come, and when we have seen further reductions to the base rate, people should really start to see the impact.'
Nick Mendes of the mortgage broker John Charcol says: 'We can anticipate the downward trend in fixed-rate costs to continue into next year, as markets price in further base rate cuts and lenders use every opportunity to stay ahead of the competition.
'With this in mind a 3.5% five-year fixed rate could be within reach by the first quarter of next year.'
The base rate cut may result in banks reducing the amount of interest they offer on savings accounts, providing a blow to people looking for the best return on their money.
Excluding accounts with limited withdrawals or other restrictions, the best instant-access savings rate is currently 5.2%.
If you're willing to tie up your savings for two years, the best rate currently available is 5.05%.
The top one-year cash Isas offer rates of just below 5%.
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