With the Bank of England reducing interest rates to 0.1% what does this mean for borrowers?
If you are on a tracker mortgage you should soon see the rate reduction passed on to your mortgage repayments. Likewise, if you are on your lenders’ standard variable rate (SVR) it is likely you will be impacted by this latest cut as many providers will factor it into their own base rate.
However, it would appear the cut will only benefit a small proportion of borrowers.
According to financial trade body, UK Finance, just 11% of borrowers are on tracker mortgages. Meanwhile, 69% of those people with outstanding mortgages in December 2019 were on fixed-rates, and will not see any change as a result of the BoE rate cut.
It’s not all bad news if you are on a fixed rate, however. Firstly, all mortgage borrowers whose repayments may be impacted by coronavirus are being offered three-month ‘payment holidays’ to help bear the brunt of the financial storm caused by COVID-19.
Secondly, with interest rates at an historic low many borrowers will be benefiting from low interest rates with the security that they are fixed until the end of the initial incentive period. During these uncertain times that security cannot be underestimated.
If you are about to remortgage or are one of the 16% of borrowers currently sitting on your lenders’ standard variable rate (SVR) – often also known as a bank base rate – you could benefit by switching to some of the competitive rates available at the moment.
If you are planning to remortgage experts think you should do so quickly. Indeed, True Cost Mortgages, believes things could change rapidly.
The typical two-year fixed mortgage has fallen to 2.11 per cent, a low not seen since October 2017.
Lenders have reduced the number of mortgage products available since the outbreak put the country on lockdown, with many pulling deals at higher loan to values (LTV), which typically have higher rates. This is likely to account for a significant part of the average rate fall.
However, over the past week several lenders have brought back higher LTV mortgages, including Halifax and Nationwide which both reintroduced lending back up to 85 per cent LTV.
The two-year average rate has fallen to 2.28 per cent on 3 April from 2.39 per cent on 24 March. Source Trigiold Comparison.
So with rates so low it’s unlikely for them to fall much lower as lenders have other issues to deal with as many of their staff are off or working from home so this is unlikely to translate into cheaper rates across the board.
We are already seeing some lenders, especially more specialist mortgage providers, increase their rates to protect their positions.
For anyone looking at remortgaging within the next six months, now is categorically the time to get on with it.
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