Just days after the base rate was cut to 0.25%, in the wake of the Coronavuris pandemic, Bank of England took the decision to slash the base rate again to a record low 0.10%. Find out how the base rate can affect your mortgage and what to do if you have a fixed, tracker, discounted or standard variable rate mortgage.
What is the ‘base rate’?
The base rate is the interest rate set by the Bank of England, used as a benchmark for interest rates generally. In response to the rapid spread of the Covid -19 virus, the Bank of England decided to slash the base rate to 0.10%, the lowest ever level in the history of the Bank.
How does the base rate cut affect your mortgage?
Broadly speaking, a lower base rate is good news for borrowers because the rate of interest they repay will be lower, which in turn means lower monthly mortgage payments.
The impact of interest rates on mortgages will depend on the type of mortgage you have, the amount you have borrowed and your mortgage term.
If you’re on a fixed rate mortgage: This is a rate is fixed over a certain period. It could be fixed for 2, 3, 5 or even 10 years. You will continue to pay the same monthly mortgage payment over the fixed period regardless of any fluctuations in interest rates.
Should you do anything? If you are near to the end of your fixed rate period, it is worth checking if you could save money leaving early. You need to take into account any early repayment charges the lender may ask to pay and work out if paying these and switching mortgage deals may be more cost-effective for you. With most lenders you can remortgage to a new deal up to 6 months before the end of your fixed period, so if you are in that situation it’s worth speaking to one of our mortgage brokers as soon as possible. .
If you’re on a standard variable rate (SVR) mortgage: You are most likely to have this type of rate when you reach the end of your mortgage deal. At this point, if you don't remortgage onto another deal, your rate reverts to your lender's SVR and this is usually pricey. The rate you pay on an SVR mortgage will be determined by your mortgage lender and they can increase or decrease their SVR at any time not just in response to changes in Bank of England’s base rate.
Should you do anything? The good news about standard variable rates mortgages is that they usually have no early repayment charges, giving you the flexibility to overpay, pay off the mortgage early, or quite often the likeliest scenario - remortgage to a new deal with a different lender. By speaking to one of our mortgage brokers, remortgaging to a new deal can potentially save you hundreds or even thousands of pounds a year. Why not leave your details here for us to call you back?
If you’re on a 'discounted' mortgage? This type of mortgage is fixed at a set percentage below a lender’s standard variable rate, therefore, the recent cut in the base rate will not benefit a discounted mortgage unless the lender has reduced their standard variable rate.
Should you do anything? The first thing to consider is the early repayment charges set by your lender. These fees can amount to thousands of pounds so remortgaging early may end up costing you a lot. However, if you are within 6 months of the end of your mortgage deal, it is a great time to consider switching lenders. Contact our mortgage brokers for advice on remortgages.
If you’re on a tracker mortgage: This type of mortgage will usually follow Bank of England’s base rate and the amount of interest you pay on your mortgage might be the base rate plus or minus a certain percentage.
Should you do anything? Tracker mortgage deals are usually agreed for a set period of time. Because of this, you will probably have to pay an early repayment charge if you want to switch to another deal early so it’s very important to take these into account before remortgaging. If you’re near the end of your mortgage deal though, you can speak to one of our mortgage advisers to see how you can benefit by switching to a new mortgage. If you do not remortgage at the end of your benefit period, your rate will revert to the lender’s standard variable rate which is often higher. To find out more contact one of our mortgage advisers here.
And finally, what are the lenders doing? With the current market volatility, these are uncertain times for mortgage lenders and their rates. Some rates have been withdrawn and yet some products remain ultra-competitive so if you are thinking of remortgaging, now is the time. Contact us for advice on remortgages on 01242 697821 or firstname.lastname@example.org.