What lower interest rates mean for your type of mortgage
With a unanimous vote across the board, The Monetary Policy Committee has announced that the bank rate will decrease to 0.25 per cent. Following economic uncertainty since the EU referendum results, this is quite a momentous decision considering the rate has stayed the same, at 0.50 per cent, since 2009.
Although the decision will have little impact on new borrowers, if you’re an existing borrower then you’re probably wondering what this means for you, and what your options are now.
Here I have outlined what the change might mean, based on the type of mortgage you already have.
Typically, you won’t be affected by the bank rate change because your mortgage is set at a fixed rate. However, you can remortgage, but check with your lender first, as depending on how near to the end of the mortgage term you are, will depend on how large the early repayment charge will be.
Lender’s standard variable rate
Standard variable rates are set internally by the individual lender. The lender is not obliged to pass on the reduced bank rate, so it’s highly recommended that you speak to your own lender or get in touch with an independent mortgage adviser who can offer expert advice for your personal circumstances.
Some lenders adopt a “cap and collar” approach whereby, regardless of fluctuations in the market, the interest rate on your mortgage will not rise or fall below a certain amount.
Check the terms and conditions of your tracker mortgage to see how the bank rate could affect you, as this will largely depend on what your mortgage actually tracks, such as Libor, or the Bank of England rate.
For those with a tracker mortgage linked directly to the BoE bank rate, for every £50,000 of borrowing on a 20 year term mortgage, the interest rate change would reduce their payment by £6 per month.
If you’re considering investing in a buy-to-let property, then it’s worth keeping a close eye on the market. Interest rates are at a record low, so now could be an excellent time to secure your money in a property.
Although we don’t know which way the market will go yet, if house prices do fall then this could be a good time to buy. Just be aware that if this does happen, you will need to act quick, so be ready with your mortgage in principle in place as this could make you a more attractive buyer, plus you will know exactly how much you will be able to borrow.
Now could be as good a time as any to revisit your financial position. Regardless of how people may be feeling post Brexit it is always advisable to review your finances every once in a while. Make a point of reviewing your mortgage annually.
Many UK homeowners have been left feeling a bit uneasy and unsure about which way to turn post-Brexit and although we cannot predict any further changes, the market as it stands now offers many mortgage options for you. We have access to over 11,000 mortgage products from 90+ lenders so if you are looking to remortgage there’s a good chance you will be able to find something to suit your circumstances. Speak to an independent mortgage adviser who will be able to offer their expert advice and help you find the most suitable mortgage rate to suit your lifestyle.
*Franz Muehlthaler from Holroyd Miller Properties in association with Reach 4 Mortgage, Solutions and the Mortgage Advice Bureau.