The Bank of England has announced two emergency cuts in interest rates in response to the recent financial impact of the Coronavirus outbreak. On 19 March the interest rate was cut for the second time in under a week to a record low of 0.1%.
The base rate is the official rate that the Bank of England charges other lenders when they borrow money and will therefore influence the rate that borrowers and savers will ultimately receive.
Most high street banks have reacted quickly to the Bank of England’s decision by reducing their variable and tracker rate mortgages, but many have yet to adjust their fixed rate products.
Simon Torry from SRC Mortgages; one of our panel mortgage advisers, details how these mortgage rate changes may impact you.
How does this affect my mortgage?
Existing borrowers with tracker rate mortgages should benefit from this cut almost immediately but those with fixed rates will see no change to their monthly payments.
New borrowers will possibly be attracted by a low variable rate mortgage, but it is worth remembering that these are very uncertain times, and rate rises could quite easily follow if the economic environment changes.
Advice for First Time buyers
For most first-time buyers, we would still recommend that a fixed rate mortgage is their best bet. Knowing that your monthly payments won’t change, no matter what happens, will provide financial security whilst you acclimatise to being a homeowner. And regardless of the recent rate cut, it’s worth remembering that fixed rate products are still at historic lows.
How long should I fix my mortgage term in the current climate?
Deciding how long to fix your mortgage is a question normally determined by individual circumstances as opposed to our view on whether rates may rise or fall in the future.
For example, if you have a small deposit, it is likely that the mortgage you can access will have a higher interest rate than those available to people with more money to put down.
Fixing for a short period may therefore provide an opportunity to review your situation sooner, which could be beneficial if your circumstances are likely to change. If, however, you don’t anticipate any changes to your personal or financial circumstances then fixing for a longer period, say five years, may be the best way to go.
It’s worth pointing out that fees are often payable when you switch lender and/or product, so regularly changing your mortgage is not always economically beneficial.
We believe that it’s especially important that first-time buyers seek independent mortgage advice to ensure they get the deal that’s right for them. Buying a home is a big commitment and independent advice is normally invaluable especially during these uncertain times.
If you need further advice or are interested in getting a mortgage on your home, our panel of Mortgage Adviser's are on hand to offer some assistance.
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