What The Bank Of England Base Rate Cut Means For Mortgage Holders

Tue 04 Oct 2016

What The Bank Of England Base Rate Cut Means For Mortgage Holders

Despite being talked about for years, it probably came as a bit of a surprise to most people when the Bank of England announced it was cutting the base rate to 0.25 per cent at the beginning of August.

Official interest rates have been held at 0.5 per cent for the past seven years. So, what does this mean for mortgage borrowers and those looking for a new deal?

Will my mortgage rate be cut?

Those with mortgage products that track the Bank of England base rate should see their payments reduced from September. However, not every borrower with a tracker mortgage will benefit as some base rate-linked products have a floor or a collar on the rate, which means that they won’t go any lower.

So what are my best next steps?

If you are midway through a fixed-rate deal, you may be able to save money by switching to a cheaper product. Banks and building societies competing to attract new customers are offering ever more competitive deals. According to the financial analyst Moneyfacts, the average two-year fixed rate mortgage deal is now 2.47 per cent, down from 2.71 per cent a year ago.

What about penalties and fees?

For some borrowers, it will be possible to make savings even after forking out to pay an early repayment penalty and the fees for the new deal. Whether you can save money or break even will mostly depend on your current rate of interest and the interest rate on your new deal.

Most fixed rate deals come with an early repayment charge, which is usually charged as a percentage of the outstanding loan amount, with the average being 3 per cent.  In addition, there are the costs of your new mortgage deal such as an arrangement fee and solicitor’s fees.

Peter Gettins of broker L&C Mortgages:

“As a rule of thumb, if you are three years into a five-year deal, you would need to be on a rate of 4.5 per cent for switching to be worthwhile. However, it would be unusual for you to be on that rate because the average was 3 per cent three years ago.” He adds: “If your interest rate was 4 per cent and the early exit fee was 2 per cent then it could work out.”

If you took on a five-year deal with a rate of 4.5 for a mortgage of £200,000 three years ago, your monthly repayments would be £1,111. Over three years, you would have approximately paid off £15,000 and be left with £185,000.

If you switched to a two-year deal with Norwich Peterborough building society, which has no arrangement fee and a rate of 1.69 per cent, you would be paying £817 a month based on a remaining term of 22 years. That makes a saving of £294 a month or £7,056 over two years.

If the early exit fee on your original deal was being charged at 3 per cent, you would pay a fee of £5,500. So you’re overall saving would be £1,556.

If your deal has ended and you are on your bank’s standard variable rate, you may have seen your payments reduced as some banks are passing on the reduction in the base rate to mortgage borrowers. From the next month, Santander’s SVR will be 4.49 per cent, down from 4.74 per cent.

However, the savings you would make would be minimal compared with the best deals on the market, so it is better to look for a new deal than stay on an SVR.

For original article, visit: 

http://www.rightmove.co.uk/news/articles/property-news/what-the-bank-of-england-base-rate-cut-means-for-mortgage-holders/

"We had a portfolio of 10 properties with another Agent who had, in our opinion, "mis-managed" for some time. Having consulted Margaret and been impressed with her professionalism, we decided to transfer them to Anker and Partners. We have not looked back and are so happy with the service we now receive. Thank you Margaret and your team."
Kate Buckingham - Landlady

News Archive

December 2017

Unwrap your perfect home this Christmas

November 2017

Stamp duty scrapped on homes up to £300,000 for first time buyers

Top tips for dealing with the Bank of England’s 0.25% base interest rate rise

July 2017

Broughton Castle Sportive 2017

Bodfest 2017

May 2017

The London & Country Property Show 2017 - Update

April 2017

The London & Country Property Show 2017

March 2017

On The Markets guide to house price indices

Plans for a £50 million waterfront leisure development in the heart of Banbury have be unveiled.

February 2017

Is your home in an area prone to flooding? What to do if disaster strikes?

January 2017

House prices: Whats in store for 2017?

December 2016

Christmas Opening Hours

Merry Christmas and Happy New Year

November 2016

Sales to first time buyers at highest level on record

Hugh Grants Former Bachelor Pad For Sale

Tories pledge to build 40,000 more affordable homes in Autumn Statement 2016

2016 - Autumn Statement: Lettings agent fees to be banned

Winter-Proof Your Home SOS

October 2016

Spamalot - Banbury Operatic Society - Tickets on Sale

Keeping your home damp free

What The Bank Of England Base Rate Cut Means For Mortgage Holders

September 2016

Moving to a new area? Top tips to help ease moving house

August 2016

Buying or selling a property with asbestos?

July 2016

BBC Packing Tips

3 Ways RICS Home Surveys Pay For Themselves

June 2016

Buying or renting a listed building? Everything you need to know

10 Secrets To Achieving Show Home Style

May 2016

Buying Or Selling A Property Affected By Japanese Knotweed?

Can Overpaying Your Mortgage Save You Money?

All You Need To Know About The Lifetime ISA

5 Ways To Protect Your Home From Flooding

April 2016

One in four of today’s first-time buyers will be paying off mortgages in retirement

Anker and Partners sponsored football kit being re-used in Sierra Leone!

March 2016

Oxfordshire Villages The Sibfords and Great Tew make it into top 40 best villages in Britain

February 2016

Sky Dive to Raise Funds for the Blue Cross

Is it cheaper to rent or buy a home?

Help to buy scheme

January 2016

Will UK house prices continue to rise in 2016?

Supporting Dogs for Good

UK Stamp Duty - What changes to expect in 2016?

April 2009

Factsheet: Mortgages