The Bank of England’s Monetary Policy Committee decided to cut interests rates from 0.50% to 0.25%. But what does this really mean for existing mortgages and those looking to buy a new property?
For existing mortgages
“Using Office for National Statistics (ONS) house price data, a cut to 0.25% means a £22 monthly reduction in the bill for a variable 25-year repayment mortgage on a typically priced home of £211,000 having taken a 20% deposit into account. So that is a £22 cut on a monthly mortgage bill of about £779,” say the BBC.
However, those on fixed-rate mortgages will see no change.
To find out if your type of mortgage will benefit, click here: https://www.moneysavingexpert.com/news/banking/2016/08/bank-of-england-august-base-rate-decision
However, there is not guarantee that banks will pass on the drop in interest rates, though many have already promised to pass the saving along to their customers.
Despite the cut, some banks may be reluctant to reduce new mortgage rates even lower. Their low margins are now set to get even slimmer, so they may want to spend their money making saving rates sweeter rather than cutting borrowing rates.
Money Saving Expert say: “The Bank of England itself said today (4th August) it expects any cuts will be limited.”
“Our message for months has been that mortgage rates are already incredibly low, so if you're looking for a deal and you qualify for one, then why wait? The base rate going down doesn't change that message.”
“The 'why wait?' message particularly applies if you're buying a new home. A base rate cut may save you a few pounds per month if rates drop as a result, but you could risk not getting your dream home if you dally.”
Before taking on a mortgage, it’s important to hope for the best, but know you can handle the worst. Could you still afford your mortgage repayments if interest rates increase? The Bank of England governor Mark Carney has warned that people taking out mortgages should be prepared for a jump in their mortgage costs of up to 3%.
He said: “If you are taking out a mortgage, at some stage during the life of that mortgage, conditions will be difficult. You need to be sure that you can repay that mortgage - you don’t want to lose your house or flat.”
Mr Carney did say that a 3% rise was unlikely, but also advised home buyers to have an adequate cushion to help them cope with other economic shocks.
Current low mortgage rates offer a great deal to movers, and there is no real way of predicting if the rates will be better or worse at the end of a fixed-term contract.
Once you’ve seriously considered all possibilities, there are lots of incredible mortgage rates that can be snapped up at the moment, making summer 2016 a perfect time to invest in property. Banks are getting competitive to see who can offer borrowers the best deal.
David Hollingworth, of mortgage adviser London & Country, said: “Borrowers have an outstanding range of mortgage options open to them at the moment.
“Those concerned about volatility in the near-term can currently fix their rate at record lows. That's likely not only to save them money now but also give real certainty around their monthly budgeting.”
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