personal finance

Mortgage: Will interest rate cut affect mortgage rates? Should I remortgage?


The Bank of England announced an emergency cut in interest rates this morning in a bid to shore up the economy amid the coronavirus outbreak. Rates were reduced today from 0.75 percent to 0.25 percent, taking borrowing costs down to the lowest level in history.

Mark Carney, the Bank’s governor, said: “The Bank of England’s role is to help UK businesses and households manage through an economic shock that could prove large and sharp, but should be temporary.”

But the decision has sparked fears among mortgage holders that it could affect their payments.

And it’s good news and bad news.

Money Saving Expert wrote: “Some mortgages will get cheaper. Homes with tracker mortgages – whose rates ‘track’ the base rate – should see their rates drop.

Read More: Budget 2020 secures first step to Cummings’ post-Brexit vision of UK

Mortgage: Graph going down in line with interest rates

Mortgage: Interest Rates were cut in an emergency move this morning (Image: GETTY)

“However, fixes won’t change and with others it’s not clear-cut.”

Martin Lewis explained: “The financial winners are those on variable and tracker-rate mortgages.

“They will see cost cuts of – very roughly – £25 per month per £100,000 of mortgage (use the MSE Mortgage Calculator to work out your exact reduction).

“And while it’ll take a week or two to filter through, it’s likely we’ll see the rates of new mortgage fixes drop too – meaning it will be a very cheap time to remortgage.”

Mortgage: Mark Carney

Mortgage: Mark Carney, the Bank of England’s governor announced the cuts on Wednesday (Image: GETTY)

Essentially this means rates won’t change during the fixed period – but if you remortgage in future, any new fix may end up being cheaper now.

It also means lenders could cut standard variable rate (SVR) or ‘discount’ mortgages.

Martijn van der Heijden, Chief Strategy Officer – from online mortgage company Habito, said: “The measures announced this morning by the Bank of England sees interest rates back at the lowest level they have been, something not seen since the cut after the Brexit vote in 2016.

“This, the Bank says, is a move to mitigate the “sharp, large and temporary” impact of the coronavirus crisis.

Mortgage: Man taking swabs in laboratory

Mortgage: Coronavirus is having an impact on the economy globally (Image: GETTY)

“The Bank hopes these precautionary measures will bridge coronavirus related economic disruption and only goes to highlight that it could become a more challenging environment for homeowners and homebuyers in the coming months.

“Several lenders have already said they’re going to offer up to a 3 month ‘mortgage holiday’ for customers affected by coronavirus and more are expected to outline the support they will offer.

“For those on a variable rate mortgage, their monthly payments should now come down which will be welcome news.

“However, for homeowners on a fixed-term mortgage, there will be no change to their monthly payments and for those on their SVR, monthly repayments may not necessarily change.

“In any case, any change to monthly repayments will be something individual lenders will decide.

“If people are struggling to pay their mortgages, they should always contact their lender – especially as some have indicated they will be flexible if income is temporarily disturbed as a result of the Coronavirus.

“In general, people could also try to create a small cash-buffer by seeing if they can save money by switching their mortgage, through a free, whole-of-market mortgage broker.”

For people who may be worried to buy a home right now due to the market, Mr van der Heijden said: “People should go for a home because it’s their dream home, and they can afford to live in it now and in the future.

“I don’t think the availability of mortgages will change that much.

“In that sense it is just a good a time today as it was a week ago and probably is in a months time.”

The Chief Strategy Officer added that the extent of the impact of coronavirus on the housing market is yet unknown, echoing what Mr Carney said earlier on Wednesday. 

Mr Carney had stressed the economic damage caused by COVID-19 remained unclear.

However, the Bank of England governor suggested that the UK economy could shrink in the coming months.

Sally Francis, money expert at MoneySuperMarket, told Express.co.uk on how savers and borrowers should respond to the interest rates cut: “The drop in the Bank of England base rate takes us back to the historic low level of 0.25percent seen during the financial crisis.

“It is a drastic step and could have significant implications for anyone who is a borrower or a saver.

Mortgage: Toy house, keys and calculator

Mortgage: The move is mitigate the ‘sharp, large and temporary’ impact of the coronavirus crisis (Image: GETTY)

“If you have a variable rate mortgage, you may see your rate decrease.

“Mortgage rates are already low though this could mean they fall further – good news if you’re looking to switch to a fixed deal.

“If you’re on a fix already, check early exit penalties before switching – it may work out costlier even if the rate is cheaper.

“For savers, the news isn’t so welcome. Saving rates have been low for a long time and this cut could lead to further reductions in rates.

“People will need to compare rates and make sure their money is earning the best return possible in this low-interest-rate environment. 

“Monitor your rate, compare other rates, and switch when your accounts aren’t paying the top rates available.”

 



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