On the 4th August 2016 the Bank of England voted unanimously to reduce base rate from 0.5% to 0.25% to encourage lending and provide some stimulus to the economy post the Brexit vote. So what does the interest rate cut mean for you?
While this may mean even cheaper mortgage borrowing for homeowners, savers are likely to miss out on interest on their cash accounts, and make annuity rates even more unattractive.
Anyone with a fixed rate mortgage won’t see a change for now. If any of your borrowing is on a variable rate then it’s likely to be good news.
Borrowers with mortgages that track the base rate will see their monthly repayments fall, probably from the start of September. For those on a variable rate (meaning that it tracks the lenders standard variable rate) there should also be a drop but in the main lenders can chose what to do with their standard variable rates, and some may choose to delay.
Cash savers & annuities
Savings rates were already low and may get worse. Investors may start looking for riskier assets to improve returns with money likely to flow into the stock market. Be sure to take advice if you go down this route, to make sure it is right for you.
The rate cut will also hit annuities, which are underpinned by gilt yields. The Association of British insurers has warned that the rate cut is ‘likely to put downward pressure on annuity rates’, locking savers who buy one now into ultra-low returns. However, the number of options for income at retirement with ‘pensions freedoms’ offer some useful alternatives to this.
A long-term strategy
All of the noise post the Brexit vote shows the importance of a being diversified and sticking to a long term strategy. But as with any change it’s good practice to review your financial planning strategy. We offer all prospective clients a discovery meeting with one of our experienced Financial Planners. It’s your chance to see if there’s a fit between your needs and our services, at no cost or obligation to you. Book your meeting to start planning your financial future, today.