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Mortgage Rates Set To Fall - Is It A Good Time To Remortgage?

Mortgage Rates are at a all time low...

    • 4.20% Initial
    • 5 year fixed
    • 6.7% APRC
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    • 4.21% Initial
    • 5 year fixed
    • 7% APRC
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    • 4.26% Initial
    • 5 year fixed
    • 7% APRC
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    • 4.30% Initial
    • 5 year fixed
    • 6.7% APRC
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    • 4.32% Initial
    • 5 year fixed
    • 7% APRC
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Representative example based on a fixed rate mortgage

A mortgage of £375,000 payable over 20 years initially on a fixed rate for 5 years at 4.38% and then at the standard variable rate of 7.65% for the remaining 15 years would require 60 monthly payments of £2,351.88 and then 180 monthly payments of £2,899.55.

The total amount payable would be £663,156.80 which includes interest and product fees of £1,124.

The overall cost for comparison is 6.5% APRC representative.

Early repayment charges may apply.

What’s happening In The UK Mortgage Market?

In response to the coronavirus outbreak in the UK, the Bank of England has dramatically cut their base rate from 0.75% to 0.25% which is considered to be an emergency measure to help support the economy through the financial disruption caused by the spread of the Covid-19 virus.

The base rate is the official interest rate of the Bank of England which is used by other banks and financial institutions as a measure of how much they should be charging borrowers and paying savers in interest. This follows banks such as NatWest or RBS offering mortgage holidays or deferments to customers who encounter financial disruption due to the coronavirus.

This cut puts the base rate at the lowest it has been since the financial crisis in 2008.

Bank-of-England-base-rate

What does this mean for mortgage borrowing?

There has been a lot of discussion about how this base rate will impact mortgages and mortgage rates being offered by banks. The big question seems to be whether or not rates will fall below 1%.

Laura Suter, personal finance analysis at AJ Bell stated that:

“Mortgages rates are already near record lows and it’s unlikely providers will be able to cut them more – let alone pass on the entire rate cut…The exception is those on tracker rates, who will see a near-immediate effect on their monthly repayments”.

The vast majority people currently on a mortgages are fixed rate and will therefore not see any savings as a result of this rate cut. But, for those on tracker rate mortgages they should see significant cuts.

If they want to remain competitive, banks will  respond to this base rate cut by lowering the fixed rates they are offering.  It’s not a guarantee that all banks will do this, but for those trying to remain competitive this is likely.

This also puts the tracker mortgage rate at the lowest it’s been in history – which means for those in the process of getting a new mortgage, this will make the cost of borrowing significantly less.

But for new mortgage rates being offered – these are set to fall as a result of this base rate cut.

mortgage-rates-set-to-fall-below-one-percent

What about remortgaging?

If you’re at the point of remortgaging your home, you are likely to end up on a better deal and be able to save money as a result of this cut. The last time that the base rate was in and around this level, some banks offered two-year fixed-rate deals below 1%.

While this isn’t a guarantee that this will happen again, it’s possible this will see mortgage rates drop to or below 1%.

Fixed Rates will not adjust until the end of the month – so if you are looking to remortgage then, you can take advantage of this saving.

This delayed response is because banks who lower their rates will obviously be inundated with business and might then struggle to cope with such a sharp hike in business. Mortgage lenders want to have the most competitive rates – but they also want to be able to support the sharp uptake of enquiries that this would inevitably create.

Looking to Remortgage?

For some people who are looking to remortgage, you should be looking at what rates will be coming up on the market in the coming weeks as banks will continue to react to the base rate cut.