Don’t look a gift horse in the mouth

Fool.co.uk urges homeowners to take advantage of today’s rate cut, but also to remain vigilant over the cost of borrowing in the future.

The central bank today trimmed interest by 0.25% to 5.5% in response to news that economic growth in the UK is stuttering to a halt. A raft of lacklustre statements from high street retailers, a downturn in the housing market and ebbing consumer confidence point to growing concerns over the health of the UK economy.

David Kuo, Head of Personal Finance at Fool.co.uk, says: “The Bank of England has finally been stirred into action as it bows to calls by industry leaders to revive the flagging UK economy.

“It seems the central bank has decided to throw caution to the wind as far as inflation is concerned. Consumers should not look a gift horse in the mouth, but nor should we follow its lead.

“Homeowners on tracker-rate mortgages will see an immediate reduction in their monthly repayments. But they should capitalise on the rate cut by maintaining repayments at the previous level.

“Currently, the repayments on a 25-year £200,000 mortgage at 6% are £1,288 a month. This will drop to £1,258 after today’s quarter point reduction. But by maintaining repayments at the previous level, the length of the mortgage will be reduced by 15 months. The total interest bill will be slashed by £19,392.

“Inflation remains a real threat, and it’s worth bearing in mind that what the central bank gives with one hand it can easily take back with the other – at any time.”