In response to the ever-growing coronavirus crisis, the Bank of England (BoE) has responded by cutting its base rate to an historic low. Following a unanimous vote by the monetary policy committee, the base rate of 0.75% has been cut to 0.25%, in an attempt to safeguard the economy against the rapidly rising virus pandemic.
What will this mean for borrowers?
The base rate drop will mean mortgage rates could be set to hit record-lows for borrowers. In fact, the Bank of England’s base rate hasn’t been this low since the financial crash. As a result, lenders may start offering much cheaper interest rates than those currently available in the market.
Cheaper mortgage products will likely start to be offered, and some borrowers who currently have a mortgage will see some benefits. Those on tracker mortgage will likely see a drop in rates, as these types of mortgages will fluctuate with the base rate. For example, those on a typical £150,000 mortgage should see an average drop of around £20 a month on a tracker mortgage.
It’s worth noting though that those on fixed rate mortgages won’t see a change in their repayments. As these mortgages charge a specific amount of interest for a set period of time, regardless of a change to the BoE’s base rate. After the fixed rate period ends, borrowers are usually moved onto the standard variable rate (SVR) mortgages.
SVR mortgages may change following the base rate cut, but this will be at the lenders' discretion. Banks are under no obligation to change these rates in line with the BoE. Those who’s fixed rates are soon to expire will look at a remortgage, to take advantage of the base rate cut and keep their mortgage payments as manageable as possible.
How will this affect the wider property market?
The sudden cut to the BoE base rate is unlikely to have a huge impact on the property market. This is due to the fact that mortgage rates are currently at near record lows as it is. Plus, many homeowners are already locked into fixed-term mortgage deals.
Savers will likely be left feeling frustrated though, following the base rate change, as they may see the value of their savings drop as interest rates payable on savings accounts are cut. First-time buyers in particular will be affected as they continue to save for a deposit.
However, several lenders have responded by promising mortgage repayment ‘holidays’ to homeowners whose finances are affected by the pandemic.
What action can you take?
If you happen to be on a fixed rate mortgage and it’s not long until your end date, you can seek out the services of an experienced mortgage broker, who can ensure you find the right deal for you.
Also, if you happen to be on a tracker or variable rate deal, and you’ve noticed that your rate has increased, you can speak to us at TaylorMade. We’ll talk you through and assess all the options available to you.
For more information get in touch with us today on 0345 305 2540, or at info@taylormade-finance.co.uk.
