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Base rate cut could lead to 1 per cent mortgages

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A further base rate cut from the Bank of England could see mortgage interest rates fall below 1 per cent, according to industry analysts.

Bernstein research suggests that interest rates on one of the most popular products in the UK market – an 80 per cent LTV two year fixed mortgage – could drop to 110bps by next summer. It says that those with a strong credit rating could even see a rate drop to 100bps.

Bernstein analyst Chirantan Barua says that banks with excess deposits, such as HSBC and RBS, and challenger banks, will be the most likely to lower their rates to these levels and said that risk is considered low as the UK “hasn’t had a mortgage crisis in nearly 25 years.”

“The most important driver to funding costs in the UK is the Bank of England Base Rate,” says Barua.

“The BoE has cut rates post-Brexit to 25bps and has signalled their willingness to do so again as a weapon against any post-Brexit recessionary trend.

However, while mortgage borrowers can gain on low interest rates, savers would suffer on their accounts.

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