Interest rate cuts save borrowers £22 billion a year

Interest rate cuts following the financial crisis have reduced annual mortgage costs by more than £22 billion, new figures show.

The 4.5 percentage point cut in interest rates between October 2008 and March 2009 reduced annual mortgage costs by between £22 billion and £24 billion a year between 2009 and 2015.

On the other hand, savers lost £10.8 billion a year from reduced savings rates, according to the research from the Resolution Foundation.

But it warned that cutting interest rates will have far less impact in the next downturn and other policy changes will be necessary to prevent a recession.

The Resolution Foundation said that history shows there is a 60% chance of the UK experiencing a downturn in the next five years.

Should the UK experience a recession in 2021, when the base rate is forecast to be 1.6%, cutting interest rates to 0.5% would reduce annual mortgage costs by £8.5 billion, roughly a third of the current boost.

With interest rates set to stay low for a sustained period policy makers need to consider a wider range of policy measures now.

Matt Whittaker, chief economist at the Resolution Foundation, said: “The dramatic slashing of interest rates in the wake of the last crash has had a huge impact in staving the worst effects of the downturn, providing a boost of over £22 billion to mortgagor households annually.”

He added: “We are likely to be closer to the next downturn than the last one, and a proper assessment of counter-recessionary measures should be made before they’re used, rather than while they’re being implemented.”