The move was widely welcomed, although some quarters would have liked to have seen more. The main problem with reducing it by a huge margin is inflation as the Bank of Englands remit is mainly to keep inflation down. This is expected to creep up over the next couple of months, mainly because of gas and electricity companies putting up their rates, and if interest rates were cut drastically it would shoot up.
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A concern had been that lenders would not pass the cuts on to their mortgage customers but Halifax, Nationwide, Abbey, NatWest and Royal Bank of Scotland have announced they will reduce their standard variable rates. The likes of Lloyds TSB subsidiary Cheltenham & Gloucester, Woolwich, HSBC and First Direct all said before the announcement they would pass on any rate cut in full. Having said that, existing borrowers with some lenders may have to wait until March for this.
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Some experts believe rates will come down by another 0.5% this year so this reduction could be the start of further good news for everyone except savers who, of course, will also have their rates cut.
If you have been paying off your mortgage comfortably each month then why not use your monthly savings from this reduction to overpay on your mortgage. You will find you can save thousands of pounds by doing this so you will be better off in the long run. To see how much you will save check out our overpayment calculator.
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