Yesterday, the Bank of England announced emergency cuts to interest rates in the midst of the coronavirus outbreak. Dropping from 0.75% to 0.25%, the rates are the lowest that they have ever been in history. But what exactly does this mean for first-time buyers and those with a mortgage? We sat down with Liam O'Brien, Mortgage & Insurance Adviser for Right Click Finance, our Mortgage & Insurance partner, to get the lowdown on what this means.
The Bank of England recently cut interest rates, but why? And what impact will this have on you if you already have a mortgage or if you plan on taking one out soon?
First, the why; The Bank of England decided to take emergency measures by reducing interest rates by 0.5% with the base rate now at 0.25% to help support the economy for two main reasons. Firstly, to support individuals and businesses that may be impacted by the COVID-19 ‘Coronavirus’. The thinking behind reducing interest rates is that if individuals and businesses paid less interest on debts they hold they are less likely to be impacted should they see a downturn in income or suffer difficult trading. Secondly, inflation has been stubbornly below the target of 2% for some time. Additional measures were also announced in the budget to support businesses with cashflow.
So what if you already have a mortgage or you plan to take one out soon?
If you are on a tracker mortgage, where your interest rate is directly linked to the Bank of England based rate, you will see your payments come down as banks pass on the rate cut in full. Similarly, if you are on a Standard Variable Rate (SVR) lenders are likely (but not guaranteed) to pass the rate cut on. If you are on a SVR you should speak to your mortgage broker immediately in any case as the SVR rate is likely to be uncompetitive and much better deals will be available. If you are in a fixed rate you will see no change, but you may benefit from refinancing when your fixed rate ends because whilst interest rates have reduced by half of one percentage, whilst lenders can be slow to pass the full rate cut on, you may be able to finance to a better product.
Lastly, if you’re a first time buyer or a homemover in the coming days and weeks we may see reductions in interest rates, which would be particularly welcome for those with a 5% or 10% deposit.
Your property may be repossessed if you do not keep up repayments on your mortgage.
This firm usually charges a fee for mortgage advice. The amount of the fee will depend upon your circumstances and will be discussed and agreed with you at the earliest opportunity.
BFL Estate Agents Ltd t/a Venmores introduces to Home Legal Services Liverpool LLP t/a Right Click Finance for the provision of mortgage and non-investment insurance advice. Home Legal Services Liverpool LLP t/a Right Click Finance is an appointed representative of Primis Mortgage Network. Primis Mortgage Network is a trading name of First Complete Ltd which is authorised and regulated by the Financial Conduct Authority. The Financial Conduct Authority does not regulate some forms of Buy to Let Mortgage.