Consumers need “careful financial planning in the months ahead” after the Bank of England cut interest rates on Thursday, wealth manager Quilter has warned.
Financial planner at Quilter Holly Tomlinson said the 25 basis point cut will be “good news” for borrowers, whilst savers will be stung by lower returns on deposits.
Tomlinson said: “Banks and building societies have historically been slow to pass on rate increases to savers but tend to be much quicker in reducing rates following a base rate cut.
“There are still some savings accounts offering competitive rates above five per cent, but these may not last long.
“Savers should consider locking in higher rates where possible and exploring alternative options such as fixed-term accounts to secure better returns.”
Mortgages
Tomlinson said lenders had been “proactive” in anticipation of the Bank of England’s decision.
This follows Halifax, HSBC, and Clydesdale Bank announcing cuts across mortgage deals ahead of the change in interest rates.
Halifax cut 0.3 per cent on remortgage deals, with homeowners and first time buyers enjoying reductions up to 0.11 per cent.
Tomlinson said: “Homeowners on variable or tracker mortgages should start noticing lower monthly payments too.
“We may see some lenders introduce more competitive fixed-rate deals in the coming weeks but typically most new deals have already priced in today’s cut.”
Lucian Cook, head of residential research at Savills, said: “While todays interest cut is already largely priced into the cost of fixed rate mortgages, it will make it a little easier for borrower to meet lenders affordability tests.
“Further rate cuts over the course of the year should widen the pool of buyers and increase their buying power allowing a gradual recovery in house prices and transaction levels.
“Oxford Economics continues to forecast a further three cuts in 2025, bringing the base rate to 3.75% by the end of the year. On this basis we anticipate house prices to increase by 4% in 2025 or £14,500.”
Credit cards
Lenders can individually choose to lower interest rates, though this can happen on a slower scale.
Credit card holders could enjoy fee reductions, but due to multiple factors weighing on its rates, Tomlinson cautioned: “lenders may not fully pass on the rate cut”.
Annual, limit, and transaction fees contribute alongside interest rates to added costs on credit card users.
“Borrowers should review their existing credit arrangements and explore balance transfer options to take advantage of lower-cost borrowing where available,” Tomlinson added.
Annuities
Tomlinson encouraged retirees to “seek financial advice” on purchasing annuities and consider alternative retirement income strategies.
“Annuity rates are closely tied to government bond yields, which can be affected by interest rate changes.
“A reduction in the base rate may lead to lower bond yields, potentially resulting in less favourable annuity rates for retirees.”
Debt
The changes provide debt “relief” with cheaper borrowing costs and easier, efficient repayment.
Tomlinson said the change provides an “opportunity” for those with “significant debt” to reassess payment strategies and consolidate higher-interest debt.
Decreased borrowing costs can also pave the way for debt financing, opening up new funding avenues for companies.
Compare the Market’s Charlie Evans said: “Today’s cut is a step in the right direction for more competitive deals to enter the market, which is good news for anybody looking to consolidate debt or borrow.”
The bigger picture
“The Bank of England’s decision comes against a backdrop of slowing economic growth but more steady inflation,” Tomlinson added.
“Meanwhile, the global outlook remains uncertain, particularly with Donald Trump’s return to the White House sparking concerns over renewed trade wars.
“If tariffs increase and global tensions rise, inflationary pressures could be reignited, potentially complicating the Bank of England’s ability to maintain lower interest rates in the long term.”