The Bank of England has cut the interest rate to 0.1% and injected £200m into the economy through bond purchases.
This is the second cut the Bank’s Monetary Policy Committee has made via an emergency meeting in two weeks, after it slashed the rate from 0.75% to 0.25% last week.
A Monetary Policy Committee statement said: “The spread of COVID-19 and the measures being taken to contain the virus will result in an economic shock that could be sharp and large, but should be temporary.
“The role of the Bank of England is to help to meet the needs of U.K. businesses and households in dealing with the associated economic disruption.”
Andrew Bailey, the new Governor of the Bank of England, told Sky News that the UK economy is facing a “very big downturn”.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “In essence, we have zero interest rates.
“The Bank is trying to do all it can to reassure and stave off a recession. Will it have the desired effect? It is hard to say. These are unchartered times.
“If there is anything encouraging to take from this, it is the Bank’s comment that it hopes the economic shock ‘could be sharp and large, but should be temporary’. Like many, the Bank is anticipating that this will be a three-month issue but if it goes on longer, then it will have to think again.
“Those on base-rate trackers and variable rates will see an immediate benefit. Base-rate trackers for new customers will come down in pricing as long as lenders keep margins the same. Borrowers need to check for collars and floors, as some lenders have introduced them. The underlying cost of swap rates, which drives fixed-rate pricing, is also extremely low so more competitive rates will follow.
“Lenders are still keen to lend – some of the specialist lenders in the buy-to-let space might be looking to slow down but in the domestic residential space it is business as usual.”
Richard Hayes, chief executive and co-founder of Mojo Mortgages, said: “Looking specifically on how this further base rate cut will affect mortgages and lenders, we believe this cut needed to happen in order to increase the margin lenders currently operate within.
“Whilst we don’t expect this cut to be filtered down into a consumer’s current mortgage product, April is set to be the second biggest month for mortgage maturities this year, and despite the pandemic, there will be £21bn of loans maturing and therefore a lot of people will need to remortgage.
“As an online broker, we can help consumers remortgage and get the best rate available for them as we are whole of market – all online and over the phone.
“And despite the uncertainty in these unprecedented times, those who haven’t managed to sort out their remortgage already in time for April should really look to do it now.
“Rates are at a historical low, and if it could mean saving hundreds on your current mortgage deal, then it’s a no brainer.”
Paresh Raja, chief executive of Market Financial Solutions, said: “Not since the Second World War have we seen so many emergency actions taken by the country’s leaders to ward off an economic crisis and keep the lights of houses and businesses switched on.
“This latest decision by the Bank of England, while not entirely surprising, will have a further impact on both consumers and businesses, particularly financial lenders.
“The challenge for all of us is to remain responsive – we must listen to the guidance offered by experts and accept that people are making decisions like in the interest of the UK population and its economy.”