How Will The Change In Interest Rate Affect My Mortgage?
The Bank of England recently cut its interest rates for the first time in seven years from 0.5% to 0.25% but it will not necessarily mean cheaper mortgages, according to mortgage trade bodies.
What do the lenders say?
Many of the providers which have been spoken to say they were reviewing their SVRs in light of the base rate cut.
Find out below on which type of mortgage it will affect and how it will affect you.
Existing mortgage holders on tracker rates will benefit from the reduction in their monthly repayments and for many it will be the first change to the official base rate since the commencement of their mortgage. With a tracker mortgage, lenders are obliged to move rates in line with the Bank Rate. Halifax and Santander will cut their rate by 0.25% from 1st September. Tracker rates tend to have a fixed term after which they revert to a SVR, others may be lifetime trackers with no end date. The vast majority track base rate, but some much less common mortgages follow other market rates, such as Libor (London Interbank Offered Rate). Although Libor tends to broadly follow base rate, it doesn't always, so your rate may not fall if the base rate does.
While variable mortgages are often affected by movements in interest rates this is at the lenders discretion. One option might be to consider moving from a variable to a fixed rate deal. This is because the base rate simply cannot fall much further, so fixing at a low rate today wouldn’t mean you would miss out on further significant falls – and you would be protecting yourself from any rate rises for the duration of the fix.
Fixed rate mortgages currently account for around half of all mortgages. You are fixed into paying a particular interest rate for a particular length of time – so regardless of the base rate cut, what you pay each month will not change until the fixed period ends providing ‘peace of mind’. If you have already entered into a fixed rate, then you should be aware that at the end of the fixed rate term you will move onto the lender's standard variable rate, or offered a new fixed rate. Both of which would almost certainly be higher than your current fix, especially if rates have gone up, so at this stage shopping around to find the best deal is essential.
If you are a first time buyer, there is still a chance we will see slightly lower mortgage rates, but our advice is that mortgage rates are already incredibly low, so if you're looking for a deal and you qualify for one, why wait? For example, TSB are offering a 2 year fixed rate at 1.54% with a 25% deposit.
Help is at hand! If you would like to get an idea of how rates would affect you, then have a play with our online mortgage calculator by clicking here.
Alternatively, ask one of our advisers by calling 01603 750000.
Stacey CursonMortgage & Protection Adviser
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