It depends on your mortgage
Lenders are communicating that a cut in interest rates doesn’t necessarily mean cheaper mortgages for everyone. Some home owners, in certain circumstances will immediately benefit, although this is the minority. Here we look at the various mortgage types and how a rate cut is likely to affect your monthly payment.
This does not constitute advice and advice should be sought in all instances before acting on it.
Your property may be at risk should you be unable to maintain any agreed mortgage payments over the term agreed.
The rate cut to 0.25 percent
During the announcement yesterday, Mark Carney, Bank of England, indicated that lenders didn’t have a reason not to pass on the rate cut to their customers.
The aim of the cut is, after all, to keep more money flowing through the economy to counter-attack the effects of inflation in current market conditions.
However, interest rates are only one variable that affects the pricing of borrowing. Even since 2009, when the interest rate was changed previously, the average mortgage rate has dropped from 3.8 percent to 2.9 percent.
“This confirms that Bank rate is not the only influence on mortgage pricing.” Paul Smee, CML
Barclays and Santander have already communicated they will be passing on the rate cut to their customers on Variable Rate mortgages. Others are yet to announce their plans.
Fixed Rate Mortgages
Approximately 50 percent of borrowers are locked into a Fixed Rate mortgage arrangement. Due to ultra-low Fixed Rate deals available over the past few years, many homeowners opted to secure a low rate and fix their monthly payment.
For anyone on a Fixed Rate mortgage, there will be no impact of the rate cut immediately. Only when you come to renegotiate your mortgage at the end of the term will you be able to take advantage of any new deals on offer.
Depending on your Fixed Rate, and depending on other factors like your lender, time left on your term and fees associated with breaking your contract early, it could be worth remortgaging.
“The pricing of mortgage products also depends on factors such as demand, funding costs, appetite to lend and competition.” Building Societies Association
Speak to our specialist mortgage broker, Chris to help you determine your next steps.
Variable Rate Mortgages
Almost 5 million homeowners have a variable-rate mortgage, according to CML. Of these, of 1.5 million have a Tracker Rate mortgage.
It is those borrowers that have a Tracker arrangement, who are most likely to see an immediate saving from the rate cut yesterday.
However, if you fall into this group, check your mortgage contract as some lenders add a “collar”, or a limit, to which rates can not fall below.
First-time buyers
If you are a first-time buyer poised to get onto the ladder, the rate cut could certainly work in your favour.
Lenders’ Fixed Rates are still highly competitive, and everyone continues to fight to win deals by offering lower rates than their competitors.
“Around 80 per cent of new lending is on fixed rates, about half of all outstanding mortgage balances”. Building Societies Association.
Alternatively, a Tracker could be a good option to take advantage of the new rates without locking yourself into a Fixed Rate arrangement.
Get a mortgage review with Chris
If you would like us to undertake a review of your current mortgage deal or you are thinking of purchasing in the near future and require funding, please contact Chris for a free, no obligation appraisal.
Tel: 01403 780 770