The Bank of England has cut interest rates, taking the base rate to a new low of 0.25%. This is the first cut since March 2009, and how welcome it is will depend on your financial situation. The Bank also announced a new round of quantitative easing (QE) – pumping money into the economy to buy government bonds.

What does the cut mean for mortgages?

For anyone with a fixed-rate mortgage, it does not mean anything. But if any of your borrowing is on a variable rate then it’s likely to be good news.

The 1.5 million borrowers with mortgages that track the base rate will see their monthly repayments fall, probably from the start of September. For a homeowner on the average variable mortgage rate of 2.86% and a mortgage of £150,000, a reduction in line with the base rate will mean monthly repayments falling by £19.68 to £687.

There are no longer any borrowers with tracker rates below the base rate, but there are some people lucky enough to be paying just 0.09% above the Bank base rate. These are Chesham building society customers who took out lifetime tracker mortgages several years ago – their pay rate will fall to just 0.34%.

In the main lenders can chose what to do with their standard variable rates, although Nationwide building society has an old base mortgage rate pegged at 2% above the Bank base rate. It will have to cut that by 0.25%, but when it comes to normal SVRs, lenders may try to resist cuts, says David Hollingworth of mortgage broker London & Country. “I will not be surprised if lenders decide not to pass on any or all of the cut,” he adds.

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