Homeowners can celebrate

Homeowners have cause to celebrate today, as the Bank of England made a surprise move, bringing the base rate down to 5%.

Analysts had widely predicted rates would drop by the end of the year, but no one seemed to expect it to happen so soon. The average homeowner will now be £10 a month better off - repayments on a £60,000 mortgage, for example, will drop by £9.22 a month.

The first half of the year has been a good time for homeowners with four rate cuts bringing down the base rate from 6% at the end of last year to its current level, bringing mortgage payments down as a result. This means the average mortgage will have fallen by about £35 over the first half of the year.

This latest news will be especially welcomed by homeowners considering that when the base rate was left on hold last month analysts started to talk of a rise in rates by the end of the year, and it seemed homeowners would have to start tightening their belts.

The uncertainty over rate movements came about largely because of a surprising rise in inflation before the last decision, which led many analysts to suggest the Bank of England would have to raise rates to keep it under control.

Since then, forecasts changed and City analysts were largely predicting a further quarter point rate cut by the end of the year. A further cut to 4.75% hasn't been ruled out either, making mortgages even more affordable.

Unfortunately, the savings homeowners make won't work very hard for them in the average bank or building society account.

This latest rate cut will see savers suffer again - and they are already receiving record low rates of return on their cash. At present, the average net interest rate on a 90-day notice account with a balance of £5,000 is 2.98%. The only time it has been lower than this in the past 20 years was two years ago when it fell to 2.50% when the base rate was at 5.25%.

This is especially bad news for those who are steering away from the falling stockmarkets.

For some time savers have been advised to look around for a better deal on their accounts if they are being paid such low rates and, with internet banks paying rates as high as 7.25% last year, they were hardly pushed to find a better deal.

But the series of rate cuts this year has been evidence that even the newer institutions are feeling the pinch, with rates coming down on savings accounts, current accounts and individual savings accounts (ISAs) offered by the internet and phone banks.

Now, more than ever, it is vital that savers shop around for the best deal possible, at least consoling themselves that they are saving money on their mortgage repayments.