The Bank of England has reduced interest rates from 0.5% to 0.25% but will your mortgage benefit from the decrease?
For the first time since the financial crisis resulted in interest rates falling to just 0.5% in 2009, the bank of England has reduced them further to 0.25% following uncertainty of the EU Referendum vote for the economy.
If you are one of the 1.5 million on a tracker mortgage that tracks the Base Rate you will see a 0.25% fall in the cost of your mortgage repayments from September.
Lenders can change rates for first time buyers, home movers, remortgage buyers, and buy-to-let landlords that remain on standard variable, discount or tracker rates.
For a home mover this would see the average tracker repayment mortgage of £171,000 on a rate of 1.50% reduce by £20.52 per month from £732.21 to £711.69 per month.
There are another 3.4 million people on standard variable rate (SVR) mortgages that may also benefit although it is up to the lender to pass on the interest rate fall, according to the Council of Mortgage Lending (CML).
Mortgage rates cut from September
People on tracker and standard variable rate mortgages the majority of lenders will cut the rate but not until September such as HSBC, Nationwide, Lloyds, and Santander.
In some cases lender mortgage products will have a “collar” or lower floor below which rates cannot fall.
For HSBC the new fixed rate mortgage is a competitive 0.99% although this would require a 35% deposit and a high £1,499 arrangement fee and may be attractive to home movers or remortgage buyers with higher equity in their property.
Nationwide are cutting their two year fixed rate mortgages starting at 1.49% and an arrangement fee of £999 or for first time buyers looking to minimise initial costs there is a rate of 1.89% with no fee.
Paul Smee, director general of CML said fixed rate mortgages now account for 90% of new lending as homeowners want certainty about their outgoings.
Recent political uncertainty has caused some buyers to hesitate, however, mortgage lenders are well capitalised to meet consumer demand when confidence levels bounce back.
Mortgage rates already lower
Mr Smee said since the last change of interest rates from 1.0% to 0.5% in March 2009, the average mortgage rate has already fallen from 3.8% to 2.9%.
Lower mortgage rates benefit buy-to-let investors as they can remortgage to reduce the cost of interest repayments to lenders.
This confirms that the Bank interest rate is not the only influence on mortgage pricing and the housing market fundamentals are sound.
Other factors include funding costs, levels of competition, targeted levels of profitability, and an assessment of current and future market conditions to price appropriately for risk.
A rate cut does not automatically result in a like-for-like basis to mortgage rates and is a matter for individual lenders, Mr Smee says.
For many lenders the decision to pass on cuts to standard variable rate mortgages is likely to depend on the Bank of England operates the £100 billion funding scheme.
For older equity release buyers, fixed rates have reduced and lifetime mortgages can be secured without any evidence of earnings which is important for borrowers with only pension income.
What are your next steps?
Call our LCM mortgage brokers if you are a buy-to-let landlord with a property, remortgaging and want the best mortgage deal, buying your first home or you are planning to move home.
Learn more by using the mortgage cost calculators, property value tracker chart and equity release mortgage calculator. Start with a free mortgage quote or call us and we can take your details.
For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your home to maintain your lifestyle or gift a child or grandchild the deposit on their first home.
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