Got a Mortgage? Here's What to Expect

Interest rates influence how much it costs banks to borrow money and that trickles down to what we pay for things like mortgages.

• If you're on a standard variable rate mortgage, you could see your payments drop quite quickly. For example, someone with a £250,000 mortgage over 25 years might save around £40 a month.

• If you're on a fixed-rate deal (which most people are), it depends on when your deal ends. Good news: fixed mortgage rates have been slowly dropping.

  • The average two-year fix is now at 5.00%.

  • The average five-year fix is at 5.01%.

If you're coming off a super-low deal (like under 3%), it's still going to feel like a jump but it's better than the 6%+ we saw last year.

Savings Rates? Not So Great

While falling interest rates help borrowers, they usually hurt savers.

• The average savings rate is now around 3.5%, and it's still falling.

• Easy-access ISAs have dropped, too.

• Inflation is expected to rise to 4% by September, which means your savings may lose value over time, as interest earned can't keep up with rising prices.

As one expert put it: "Falling rates and rising inflation are a double whammy for savers."

Why Did the Bank Lower Rates Now?

Inflation is still higher than the Bank of England's 2% target (currently at 3.6%, expected to rise to 4%). So why lower rates?

Because the UK economy is showing signs of slowing down:

• Business growth is weak.

• Fewer job vacancies.

• Wages aren't growing as quickly.

Cutting rates can stimulate spending and business investment , helping keep the economy afloat even if it means inflation sticks around a bit longer.

What About Jobs and Businesses?

• Businesses are feeling the pressure from high costs and may delay hiring or investment.

• Some are even freezing wages or laying off staff.

• Lower interest rates could give them some breathing room, encouraging hiring and spending.

Meanwhile, jobseekers may face a tougher market, with fewer roles and slower wage growth.

Pensioners Could Actually Benefit

There's one group who might welcome rising inflation: state pensioners.

Thanks to the triple lock system, the state pension rises each year by the highest of:

1. Inflation,

2. Wage growth, or

3. 2.5%.

If inflation hits 4% in September as expected:

• People on the new state pension could get an extra £9.20 per week.

• Those on the basic pension might see an increase of £7 per week.

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Quick Summary

• Interest rates cut to 4% : the lowest since March 2023.

• Mortgage repayments may fall, especially for variable-rate borrowers.

• Fixed mortgage rates are improving compared to last year.

• Savers will feel the pinch with falling interest rates and rising inflation.

• Inflation is likely to hit 4% in September, adding more pressure to prices.

• The economy is slowing, and the job market is showing signs of weakness.

• Pensioners may benefit from higher inflation due to the triple lock rule.