Many are worried about the UK impact of the coronavirus on their ability to pay their mortgage. Most banks in Britain should offer those struggling a three-month ‘holiday. We answer some of the most common asked questions about mortgages and how they are affected by the coronavirus. Are you struggling or looking for a new deal? Maybe you are planning to take a mortgage holiday, whatever you do, don’t just stop your direct debit.
On the 11th of March ITV reported that The Bank of England’s base rate was cut from 0.75% to 0.25% to protect the UK economy during the coronavirus pandemic.
On the 19th of March, The Bank’s Monetary Policy Committee voted unanimously to reduce interest rates even further, to an all-time low of 0.1% to greater ease UK economic pressure.
The Financial Times reports it is hoped the emergency cuts will incentivise banks to lend more, strengthen household cash flow and fight the economic effects of the outbreak. When the Bank of England Governor, Mark Carney was asked if the economic outcomes of coronavirus could be as detrimental as the global financial crisis of 2008, he stated, “There is no reason for this shock to turn into the equivalent of 2008 … if we handle it well.”
So … How does the Reduced Base Rate Affect You?
The Bank of England base rate is important for homeowners, and UK citizens generally, as the rate affects the price of everyday goods and acts as a guide for lenders on what loan rates they can offer. This means it impacts mortgage rates, loans, credit cards and savings. Which? has a free online video to help explain the basics.
Will the Coronavirus’ Impact be Positive or Negative on Your Mortgage?
This depends on your personal circumstances, but usually a lower base rate is positive for borrowers and more negative for savers:
- If you have savings which you were hoping to pay off some of your mortgage with, you may see the amount of interest paid on those savings weaken. A higher base rate will earn a saver better returns, therefore an even lower base rate is not good news for you, unless you have a fixed rate account. For current accounts and instant-access savings accounts banks will need to give existing customers a minimum of two months’ notice of an interest rate cut, so it may be a little while before you notice any impact.
- If you have a tracker mortgage you should see a change in the amount of interest you pay per month. As trackers “track” the Bank of England’s base rate, the lowered rate should signal lower repayments. Money Saving Expert explains a typical £150,000 mortgage should drop by £10 per month on average. However, check which type of tracker mortgage you have. If you opted for a “collar” or “cap” tracker you might not benefit from any decreases in the base rate. Mortgage Advise Services recommends checking your terms and conditions and/or discussing this with a professional mortgage advisor
- If you currently have a fixed rate mortgage, your interest rate is fixed, therefore your monthly payments should remain unaltered. You may benefit from the lower interest rates once your deal ends and you remortgage to a new one. When interest rates are low, it can pay to fix your mortgage to safeguard against future interest rises. If you would like to remortgage from your current fixed deal before your term has ended, you will need to consider any penalties you may incur by switching. Mortgage Advise Services recommends discussing this with a professional mortgage advisor
- If you have a standard variable rate (SVR), or “discount” mortgage, the effect of the slashed interest rates is less clear. With these types of mortgages, it is the lender who decides what interest rate to charge you, and this can vary between lenders and what deal you have. Mortgage Advice Services recommends contacting your lender for further details
If your fixed deal is coming to an end or you are thinking of switching to save money, give Mortgage Advice Services a call today on 01332 257 087 to speak to one of our expert, friendly advisors. At this current uncertain time we cannot guarantee that our advisors will be able to handle incoming calls, so alternatively, you can email us on firstname.lastname@example.org.
We will contact you at the earliest possible opportunity.
Interest Rates are currently Incredibly Low, so if You’re looking for a new mortgage Deal …why wait?