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It’s All About that Base (Rate)

  • 7 years ago

Despite the mortgage being most people’s biggest ever financial commitment, only a few borrowers understand how the Bank of England’s base rate affects it. Only just over a quarter of mortgage-holders in the UK know how changes to the BoE’s base rate can change their monthly payment.

In August 2016 the BoE cut its base rate from 0.5% to 0.25%, its first cut in seven years. This rate was already at an historic low following the 2008 financial crisis and this latest cut was a bid to keep the economy ticking over after the UK’s vote to leave the European Union in June 2016.

Cuts to mortgage payments – for some

Anyone on a tracker mortgage (a mortgage that “tracks” the BoE’s base rate) saw their interest rate fall to 0.25%, while anyone clinching a fixed-rate deal could snap up rates as low as 1.39%.

Unfortunately for people on standard variable rate (SVR) mortgages – the most common types for borrowers – their rates only fell by an average of 0.17%, from 4.8% to 4.63%.

This means that there was a widening gap between the best and the least-best mortgage rates available. Borrowers on a more expensive SVR mortgage could, if they switched, save themselves up to another £380 a year by changing to one of the lower fixed-rate deals. Fixed rate deals were already saving an average of £3,120 to anyone switching; after August this rose to £3,500.

This is great news, but only 5% of borrowers actually do anything about migrating, despite more than a third being unhappy with their current deal.

It can pay to wise up to base rates

Even if you’re quite content with your mortgage deal, you should always have a look at what else is on offer, especially if your fixed-term is coming to an end. Of course, don’t make any sudden moves without expert advice; but if you’re looking at the base rate and it’s looking good, it could be the right time to take the plunge.

 

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