On 4th August 2016 the Bank of England announced it was cutting the base rate from 0.5% to 0.25%. Assumptions were made that this would make a difference to home owners outgoings, giving us all a little bit more money in our pockets. But now the dust has begun to settle how much difference will it really make?
Firstly let’s talk about those who will reap the benefits of this, these are the homeowners already on base rate tracker mortgages. However before you go out spending those extra pounds check you are not one of the few that have a collar on your mortgage. This means that although your mortgage deal tracks the base rate it cannot go below a certain interest rate anyway.
Now how about those on their lenders standard variable rate, surely they will be reaping the benefits of this cut too? Well no, not necessarily as the lenders can set their variable rates at whatever they wish and are not obliged to lower them with the base rate. Although many banks and building societies may drop their rates to remain competitive with the rest of the market it is completely up to them whether they do so.
The worrying thing is that people looking for a new mortgage deal may assume that they are better off with a tracker or variable rate mortgage, but with fixed rates being so low and banks and building societies now raising their tracker rates to save themselves from losing any more money if the base rate is cut again, there is such little difference in the rates is the uncertainty really worth it?
Looking at the big picture has much really changed? Maybe the government haven’t saved us that much by reducing the base rate, especially when you take into account the interest rates available now on savings products having decreased yet again. However, the best thing to come out of the base rate cut could be homeowners paying more attention to the type of mortgage they have and whether they are getting the best mortgage deal available. It is surprising how many people come out of their original deal and accept a much higher standard variable rate rather than remortgaging and accessing some of the cracking fixed rate deals out there at the moment.
The government might not have put any pounds in your pocket, but you could still save money on your mortgage yourself by making an appointment with an Independent Mortgage Adviser and reviewing your mortgage. The adviser will assess your personal needs and circumstances and tailor their advice to suit you. As Independent Advisers we are able to access the whole of market, so you can rest assured knowing that you are getting the most suitable deal out there without having to go to each and every lender yourself.
Sammy McCann BSc (Hons), Cert CII (MP)
15th August 2016
“