Mortgages - Good News for Some!
Following the Bank of England base rate cut on Thursday most banks and building societies have said they will pass on the reduction to their mortgage customers. However, first time mortgage borrowers may not get the benefits.
All of the major lenders and many smaller ones too immediately said following the Bank of England’s announcement that they would drop their standard mortgage rates by the full .25 basis points. The whole market is adjusting rapidly to the new economic circumstances and the individual mortgage borrower, already faced with multiple mortgage products and deals, could be forgiven for being confused.
The rate cut announced by the Bank of England is excellent news for homeowners with variable rate mortgages, which follow the base rate, as well as those on ‘tracker’ rates. In times past it has been the case that banks and building societies have not passed on the benefits of lower rates or at least not fully. Certainly they have been slower to do it for rate cuts than for rate increases.
This latest reduction will take around £52 a month off interest-only repayments on a mortgage of £250,000. For new mortgage applicants though brokers are unsure that the rate reduction would, as a matter of course, mean less expensive mortgages. Last time the base rate was reduced in December very few lenders offered lower fixed rate deals. Only recently have these started to appear but even now they are expensive when compared to the five and a quarter base rate.
Certainly lenders are relying less on standard variable rates choosing instead to concentrate on loyal borrowers and getting them onto cheaper new deals. While at the same time increasing the tracker rates for new applicants. This is to compensate for base rate cut. Many in the city were disappointed that the Bank did not cut by more than a quarter percent. They look to America with envy at the rapid, successive and large rate cuts by the Federal reserve aimed at boosting consumer spending.
For savers too the banks will probably reduce rates on many savings accounts by the full 0.25%. This has not been widely publicized yet. NS&I, the government’s saving vehicle said the rate on its direct individual savings account would fall from 6.05 per cent to 5.8 per cent, although this came as little surprise as the account tracks the base rate.
All this turmoil in the savings and mortgage markets makes the use of specialist independent mortgage brokers the wise option. There is too much happening, too fast, to too many lenders with too many products for any individual to keep track of. Independent financial advice from a mortgage broker is now more than ever your best investment. They can review the whole of the market and find the exact mortgage to meet client specific needs.
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