Interest rate cuts won’t reduce mortgage costs much

Just as fixed mortgage rates have shielded homeowners from rising interest rates, they will prevent households’ interest costs from falling rapidly when interest rates are cut. While borrowers on tracker and two-year fixed rate deals will soon see their mortgage payments drop, those on five-year fixes will still face higher repayments when they refinance. As a result, aggregate mortgage interest costs are set to stay elevated even as Bank Rate falls. That suggests the Bank of England may need to be bolder if there comes a point when it needs to stimulate the economy.

In view of the wider interest, we have also sent this UK Housing Market Focus to clients of our UK Economics and UK Markets services.