As expected, the Monetary Policy Committee (MPC) has voted to lower the Bank of England (BoE) base rate by 0.25 points to 4.25%. This was in part due to the lower-than-anticipated inflation rate drop to 2.6% in the year to March. Another factor was the concern over the impact of US trade tariffs on the UK economy. Some economists had predicted that a larger cut would be made to help reduce the pressure on households and businesses.
The impact of the lower BoE base rate on mortgage rates
Lenders factor in anticipated changes to the base rate, using swap rates, when determining their mortgage interest rates. As such, mortgage products currently offered will already reflect this cut to interest rates. Some lenders may still change individual products but, on the whole, mortgage rates will already have been lowered where relevant.
Further cuts to the BoE base rate are expected during the year. This is despite the predictions that inflation will significantly increase by the summer. Whilst the Bank of England is taking a cautious approach as a means to keep inflation under control, analysts from other financial institutions have predicted at least two more cuts to interest rates this year. The data from April will be key, taking into account the increase in minimum wages and higher labour costs. If further base rate cuts are made, mortgage rates should become more competitive as a result.
How will your mortgage be affected by this lower base rate?
If you have a tracker mortgage, your interest rate more than likely tracks the base rate. This means that your mortgage rate will decrease by the same amount, lowering your monthly payments.
If you have a fixed rate mortgage, your rate will remain the same until the end of the fixed term. Once this happens, you’ll be switched to your lender’s standard variable rate (SVR) unless you’ve arranged a new deal to move to. The SVR is likely to be higher than the rate you’re currently paying. Therefore, it’s advisable to start looking for a new deal within the last 6 months of your fixed-rate deal. You can lock in a new deal early but you won’t be tied to it. That means if a better rate becomes available before your fixed term ends, you can change to that one.
Get mortgage comparisons from our expert brokers
If your deal is due to expire, speak with our mortgage brokers before accepting a new deal from your lender. Ready to help you on 01322 907 000, they can compare your lender’s offer with mortgage products from other lenders. It can often work out cheaper to remortgage to a new lender than opting for a product transfer with your current one.
As well as taking the interest rates and fees into account to compare the overall costs, they’ll compare different lenders’ terms. If your situation has changed since you took out your mortgage, you may find that another lender’s terms offer more flexibility for your current needs.