Homeowners and buyers across the UK are set to benefit from a raft of mortgage rate cuts, after lenders vowed to reduce interest rates following the Bank of England’s (BoE’s) historic base rate decision.
The BoE’s Monetary Policy Committee (MPC) last week voted to reduce the base rate from 0.5 per cent to an all-time low of 0.25 per cent in a bid to boost the economy.
The rate cut was announced alongside other measures such as increased funding to banks to help them pass reductions onto consumers, and lenders have reacted quickly, with many announcing immediate reductions in the interest rates on their products.
Immediate payment reductions
Tracker mortgages were the first products to be directly affected; as they move in parallel with the base rate and so reduce in line with any falls. After the BoE shifted the rates for the first time in more than seven years, repayments on approximately one in five mortgages are expected to be lowered immediately, benefitting millions of customers around the UK.
The majority of banks have announced that they will implement the rate reductions from September 1, but HSBC revealed borrowers would benefit immediately. Its rates are being reduced from August 5, just one day after BoE governor Mark Carney and the MPC made the announcement, with the governor adding that banks now have “no excuse” not to pass on the rate cut.
HSBC’s standard variable rate (SVR) mortgage holders – whose repayments also generally reflect the base rate – will also see their repayments fall from September 1, the bank confirmed. It is a trend reflected across the market, with many lenders moving quickly to assure customers on both tracker and SVR rates that they would benefit from the BoE’s announcement,
Coventry Building Society, Halifax, Lloyds, Nationwide, Santander, Yorkshire Building Society and Virgin Money have all announced that both SVR and tracker rate customers will fall in line with the base rate reduction, while Barclays said it had already passed on the reductions to customers immediately after the BoE announcement.
Further base rate falls
After the decision was announced, Mark Carney refused to rule out further falls in the base rate later in the year, noting that the BoE is willing to roll out whatever measures are necessary to ensure that the economy receives the boosts it needs, which could mean further good news for mortgage customers in the near future.
Whether any future reductions take place or are passed on to consumers will be dependent on several factors, including the size of the cut and also whether lenders deem it feasible to offer reductions that may further impact their profits.
However, in recent months the slew of new deals that have come onto the market are indicative of the general trend for lenders to compete on price to attract more customers. Coventry Building Society has already introduced the lowest 10-year fixed rate mortgage in UK history with its 2.39 per cent offer, while HSBC’s two-year 0.99 per cent deal has seen mortgage rates slip below the one per cent level, which was once unthinkable.
With these record-breaking offers available to fixed rate borrowers, and terms for tracker and variable rate mortgages increasing in line with the base rate cut, it is a good time to snap up offers, according to market analysts.
New mortgage deals
Moneyfacts says the cut in the base rate will be a “significant boon” to those currently sitting on their SVR. The organisation calculates that, based on the average SVR of 4.8 per cent, the cut will see monthly repayments on the average £200,000 mortgage over a 25-year term reduced by more than £28 a month.
At the same time, the amount of choice across the market means consumers are spoilt for options, with Moneyfacts finance expert Charlotte Nelson stating that tracker mortgages may not even be the best option: “With fixed mortgage rates still currently sitting at record low levels, borrowers will be better off looking elsewhere for new deals.”
Currently, many fixed rate mortgages are so low that some analysts say it will be hard for providers to lower rates any more. However, there is speculation that this will be compensated for by reductions in arrangement and valuation fees and also more lenient criteria when it comes to loan to value ratio (LVR).
Many of the best rates mortgages at the moment require high deposits, but a general trend to offer lower rates with lower deposits could spell good news for those who are upsizing, and particularly for first-time buyers.
Brian Murphy, head of lending at the Mortgage Advice Bureau, noted that the uncertainty around the effect of Brexit could lead to more people opting for longer-term fixed rate deals.
Ten-year deals could be particularly popular, with many lenders currently offering to remove early payment charges after five years. This could provide opportunities for borrowers to grab a great deal on what is the average family’s largest monthly outgoing, and provide additional financial clarity.
For more information on how interest rate falls could affect your family’s finances, head to our mortgage calculator, created with the Mortgage Advice Bureau, to work out the best deal for you.