How will the interest rate cut affect you?

Over the past few months, the Bank of England has consistently cut interest rates and this month is no exception. Since October last year, interest rates have been cut every month over the course of six months. Today, interest rates have dropped once again and are now at just 0.5%. This brings interest rates down to a new historical low, as they were previously set at 1% following a cut in January.

The reduction in interest rates has been coupled with a further method intended to bolster the economy: quantitative easing. This increases the amount of money within the system to encourage banks to lend. A total of £75bn will be freed up by allowing banks to buy Government assets and pay for them with newly produced money. This measure is being taken as interest rates have fallen so low and cannot fall any further than another 0.5 percentage points, which would bring the level down to 0.

The measures being taken are intended to bolster the economy and encourage banks to lend. However, in reality, the impact from previous rate cuts has been helpful for some, but for many others it has had little impact.

For those on tracker mortgages, the interest rate they pay is tied to the base rate and some people will have seen their monthly payments decrease as a result of the cut in interest rate. However, many tracker deals stipulate a ‘collar’ or rate below which their rate cannot fall and those who have this type of deal will not benefit from the fall. Those on fixed rate mortgage deals will see no benefit. Furthermore, if you have any savings, it is likely that you will see the interest rate fall and you will be benefiting less from saving on a monthly basis.

These attempts to improve the economy will arguably have little impact on homeowners already struggling to meet mortgage repayments. Those who are seeking out a mortgage deal are still facing difficulty as significant sums are still required as up-front deposits. As those saving for a mortgage are hit by reduced interest rates on their savings, the possibility of generating the amount needed for a substantial deposit is being put even further back. It creates a difficult situation for homeowners who need sell a home fast to release the equity from it, as buyers cannot return to the market unless good mortgage deals are made more readily available.

Swift Capital offer a solution to those who need to release equity in their home quickly, with a range of equity release solutions. If you are struggling to meet mortgage payments or you just want to free up the capital in your home, contact us today and we may be able to offer a solution that suits your needs.

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