This time last year who would have predicted a further cut in interest rates to 0.25% with a possibility that this would be cut further still? After more than 7 years at a record low of 0.5%, every indication, including hints from Mark Carney himself, was that the only way was up!
With this in mind, and the advice of the Financial Press, most people taking out a mortgage or re-mortgaging opted for a fixed rate deal which, as the name suggests, guarantees that the borrower pays interest at a fixed rate for a fixed period, generally ranging from the first 2 years to the first 5 years of the mortgage term.
The alternative is a ‘tracker’ mortgage, charging a variable rate of interest which follows the Bank of England base rate. Such mortgages will benefit from the rate cut, but also carry the risk of an increased rate of interest being payable in the event that interest rates rise.
However, it is not just borrowers on tracker rates that are benefiting. For those borrowers that prefer the certainty of a fixed rate, there are new fixed rate deals also being offered at a lower rate.
Many people who took out fixed rate mortgages pre-Brexit, whilst they may be kicking themselves now, may find that it pays to take a look at re-mortgaging before the expiry of their original fixed rate deal. Under the terms of most fixed rate mortgage products an early repayment charge is payable in the event that you repay some or all of the loan before the end of the fixed rate period. However, depending how long you have to go before the end of your fixed rate period and the interest rate payable, you may find that it works out cheaper in the long run to pay the early repayment charge on the remaining balance and to re-mortgage at a new lower rate – whether this be fixed or variable. This very much depends on the terms of your original mortgage offer, in particular the basis on which the early repayment charge is calculated and the difference between the fixed rate you signed up for and the fixed rate currently on offer. A Mortgage Broker should be able to assist, or contact the lender direct.
Despite all this talk of fixed and tracker deals, it is estimated that one third of borrowers are paying interest on their mortgage at their lender’s standard variable rate. This is the lender’s standard rate of interest, unfixed and undiscounted. Once a borrower’s deal ends, the rate of interest they pay on the outstanding loan automatically reverts to the lender’s standard variable rate, unless they sign up for a further fixed rate/tracker deal.
The standard variable rate varies from lender to lender, but typically around 4% to 5%, which is higher than the new fixed/tracker deals.
There has never been a cheaper time to get a mortgage, provided you qualify for the best rates. You may not qualify if you have missed one or more monthly repayments, or the amount of your mortgage is high compared to the value of your property. In many cases though borrowers are paying too much as they do not know how to switch, or do not even want to think about it. It is well worth making the effort, even if finance and figures are not your idea of fun. Most lenders will be happy to discuss deals available and publish details of their latest mortgage products and how to apply for them on their website. If you are prepared to pay a fee for someone to shop around for you and assist with the required documentation, you may wish to use the services of an independent Mortgage Broker.
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