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How the base rate cut works for you

What the Bank giveth, the Bank taketh away...

Among the things that come as absolutely no shock to us Brits this Summer are: England’s failure in global football, rain during Wimbledon, and the Bank of England cuts interest rates to a record low.

After the BREXIT vote the Bank cut its base rate to 0.25 per cent amid concerns that the economy is stalling  and ahead of another wave of new money under the banner Quantitative Easing.

Interest rate

The phrase Quantitative Easing to me always sounds like a diet plan  and, on reflection, that is exactly what it is from an economic point of view, but I digress.
In the meantime the Bank of England is again standing astride the balance that is the policy over interest rates.

The balance is between the benefit of the millions of mostly older people who keep their savings in cash and really require deposit rates above inflation, and the mostly younger people who are mortgage borrowers.The benefit of one equals the detriment of the other. I won’t quote figures because they change all the time, but the amounts of money concerned are roughly similar, so you can see how this works.

From a Family Building Society point of view, we can offer something to both sides.
Our Managed Mortgage Rate will be reduced by the full 0.25% on 25 September. The rates relating to our Offset Mortgage will also be reduced on the same day by between 0.20% and 0.25%. With our Offset Mortgage, you can offset low­performing cash savings by putting them aside to use to lower your monthly mortgage repayments. This allows for greater affordability and more flexibility in your finances.
And then of course, there is our unique Family Mortgage. Never before has there been a better time for family members to use their cash savings, which will not perform as well as they had hoped, to help the younger generation to get on the housing ladder.

The challenge of raising a deposit for a first house purchase has never been harder, yet the Family Mortgage offers a unique pathway to achieving that longed­for goal because up to four family members; mum, dad, grandparents and aunts and uncles, can all chip in. And it’s not just cash that can help the youngsters out, family members can offset the equity in their own homes to help provide a deposit for a first house purchase.

For our savings customers, it’s not all bad news. The interest rate paid on our Windfall Bond is directly linked to the Bank of England Bank rate and will reduce on 1 September. However, the Windfall Bond monthly prizes (ten prizes of £1,000, two prizes of £10,000, and one prize of £50,000) and the odds of winning those prizes (64/1 chance of winning in the course of 12 draws) remain unchanged. This compares to Premium Bonds where the odds of winning a major prize are in the millions to one.

Our Market Tracker Saver and Market Tracker ISA will be affected when these are set in relation to overall market rates and updated quarterly, with the rate paid next due to reset on 1 October but you know that your rate will track the top 20 rates on the market. For our other savings accounts there are interest rate reductions, although no variable rate account will be reduced by more than 0.25% and no interest rate reductions will apply to the Junior Saver. 

Sadly, some savings rate reductions are unavoidable; however, we’re confident that our rates remain competitive. 

So, how’s that for playing the good off against the bad?

By Steve McDowell

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Family Building Society
Ebbisham House
30 Church Street
Surrey KT17 4NL
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