Interest rate cut to 5% ‘long time coming’ for NI homeowners

The interest rate cut to 5% has been “a long time coming” as a piece of good news for homeowners in Northern Ireland, it’s been claimed.

And the first cut to the base rate of interest in over four years, from 5.25% to 5%, will also bring relief to businesses with loans to pay off.

Members of the Bank of England’s Monetary Policy Committee (MPC) voted for the cut by five to four, bringing the rate down from its 16-year high.

The move means a reduction in monthly repayments for those on tracker mortgages, and lower rates for those soon to enter a new fixed rate deal on their home loan.

It follows a gradual fall in inflation to 2% from a high of 11.1% in October 2022, when price rises had been exacerbated by the effects of the Russian invasion of Ukraine.

Anthony Reavey, a mortgage and protection adviser at Reavey Financial Services in Newry, said the move would be “a relief to our customers, and hopefully this is the beginning of more rate drops to come”. But he said there would be no return to the low-interest rate era of earlier times.

Mr Reavey said: “Since the beginning of 2024 we had been told to expect rates to start coming down by August/September time. It seems like a long time coming but it is good news that this has come to pass.

“We don’t expect interest rates to go back to the extremely low levels of 2020 and 2021, but there is certainly room for more significant reductions in the next 12 months.”

The UK’s base rate has been held at 5.25% since August last year, the highest level since 2008.

Michael McCord, a lecturer in property market research at Ulster University, said he expected borrowing costs among lenders to drop by up to 30 basis points over the rest of the year as a result of the cut to the base rate.

That would mean a mortgage product with an interest rate of 5% would instead be priced to 4.7%.

But he said the change would take time to benefit consumers. “The immediate impact on people’s finances will not be too apparent, but moving forward borrowing costs will reduce which will see those looking to remortgage do it at competitive market rates.

“I don’t foresee a further rate reduction this year as the signs suggest that the BoE continue to remain cautious.”

He said he expected interest rate falls to be long-drawn-out, likely settling at around 4.5% by the end of next year.

Suzanne Wylie, chief executive at NI Chamber, said businesses would welcome the cut as the cost of borrowing had been a growing concern.

“Interest rates are a significant factor in reducing the cost of doing business, so a reduction could help to facilitate business growth by reducing the cost of borrowing and encouraging investment, particularly in high-growth sectors. Whilst a reduction in interest rates is welcome, the cost of borrowing is one of a myriad of cost pressures facing our members right now.”

She said business required other interventions to help growth, including support for dual market access and resolving corporation tax, which is paid at a higher rate in the UK compared to the Republic.