20 September 2016

King West

What does the Bank of England base rate cut actually mean?

What does the base rate cut actually mean?

Interest rates have sat at 0.5 percent for the past seven years. However, despite being talked about for years, when the Bank of England cut the base interest rate to 0.25 percent at the beginning of August, the action was to the surprise of many.

Mortgages which track the Bank of England base rate should see repayments reduce with this month’s payment. That said many lenders with tracker mortgages also instate a floor on their rate meaning that they won't go any lower irrespective of any Bank of England changes.

If you are midway through a fixed-rate deal, you may be able to switch your mortgage to a better product, thus reducing monthly payments.  According to financial analysts, Moneyfacts, the average two-year fixed deal is now 2.47 percent, which has reduced almost a quarter of a percent since the average twelve months ago.

There may be some penalties and fees due for changing your mortgage provider, dependable of course on your current rate of interest and the interest rate on the new deal. On average, early repayment charges are usually calculated as a percentage of the outstanding loan amount. The average amount of this charge is 3 percent. In addition, there may be costs such as set up and arrangement as well as solicitor’s fees. However, a breakeven or profitability of the change can easily be forecasted and is likely to be feasible in a relatively short timeframe, especially on properties with larger mortgages against them. when reporting post the Bank of England statement noted that the vast majority of lenders would reduce both tracker and Standard Variable Rate interest percentages by the 0.25% reduction from the 1st September 2016. This of course also means the same for interest rates on saving.

As has been the experts’ advice for months now, interest and mortgage rates are incredibly low. If you are considering a move and thus a new mortgage, why wait? There is a chance we may see even lower mortgage rates, if only marginally, though some experts doubt they can go much lower. There are some quite remarkable deals available at the moment, such as the HSBC, offering a two-year fix at 0.99% with a £1,499 fee for buyers with a 65% deposit.

With savings accounts negatively impacted by the cut in interest rates and exchange rates meaning the pound is weakening and thus worth less whilst holidaying, perhaps now really is the time to look into a property as an investment.

Contact or in the first instance for interest in investment properties. 

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