Published: 11/03/2020Whilst the reasons behind today’s interest rate drop is of course a separate concern, more locally it is incredibly good news for both our vendors and our buyers. Borrowing has not been as affordable as this for over a decade and with the financial markets showing their vulnerability only this week, there are few investments that have proved better or more consistent than bricks and mortar in Norfolk over the same period. Our vendors will also feel the benefit of this cut as the natural follow on is a stimulation of buyer numbers and the ultimate knock on effect of that will be stronger selling prices.
What is a base rate?
A base rate is the bank’s official borrowing rate, so, what it charges other banks and lenders when they borrow money, which influences what you pay when you borrow and what savers can earn.
The base rate was last cut back in 2016 when it fell from 0.5% to 0.25%, however, since then it has risen to reach 0/75%. It is worth noting that interest rates have been at historic lows since the financial crash back in 2008.
Mortgages – what happens now?
If you’re thinking that you might see your mortgage lower in price then you could be right, but it depends what kind of mortgage you have…
Fixed Rate mortgages
If you have a fixed rate mortgage, then the rates will not change during that fixed period, as the name suggests. However, any new fixed rate mortgages taken out in the future, may be cheaper seeing as the base rate has dropped dramatically.
If you would like a new fixed rate mortgage that benefits from the rate cut, our mortgage advice partners Broadland Consultants can help you arrange this. If you have an existing mortgage, Broadland Consultants can also help you review whether it’s worth paying the exit fee to your current lender to release you from that deal for a new, cheaper rate.
Discount & Standard Variable (SVR) Rate Mortgages
Lenders may cut standard variable rate or ‘discount’ mortgages following the cuts to the base rate. These deals will tend to move at lenders’ whim, so it depends what individual lenders decide to do.
You will normally be on an SVR after your fix or tracker ends. A ‘discount rate’ follows the SVR at a set rate, for example, if the SVR is 4% and the rate is SVR minus one percentage point, it’ would be 3%.
SVRs are pricey, so if you are on one, don’t automatically decide to stick with it even if your rate is cut.
If your current lender doesn’t pass on the full benefit of the base rate cut, Broadland Consultants can help you review it to see whether it would save you money by having a lender that now offers a cheaper rate as a result of the reduction of base rate.
Are you on a tracker mortgage? You might want to check when it will fall. As its name suggests, these mortgages will ‘track’ the base rate, so mortgage costs should drop by a rough average of £35-£40 per month on a typical £150,000 mortgage.
A small number of customers will find that they don’t see rates drop, where their deal has what is referred to as a ‘collar’ which prevents rates falling below a certain level.
If you want to arrange a new tracker deal, or perhaps you feel that interest rates now can’t get any lower, it may be a good time to review locking into a fixed rate whilst the base rate is so low. Again, Broadland Consultants can help you review whether now is the best time for you to switch over to a fixed rate mortgage instead.
If you would like to book a no obligation mortgage review with Broadland Consultants, please get in touch and we will be happy to arrange this for you.