August 9th, 2016
The Bank of England announced a cut in its base rate to a record low of 0.25% and has indicated a possible further rate cut later in the year.
In response, lenders are announcing changes to their variable rates.
The Bank’s governor, Mark Carney, said banks had “no excuse” but to pass on the rate cut.
However borrowers currently on their lender’s variable rate may have to wait as late as September to benefit from savings.
The difference is that with a tracker rate mortgage, lenders are obliged to decrease rates in line with the 0.25% decrease in the base rate. However variable rate mortgages such as a discounted rate or a standard variable rate (SVR), while generally following changes in interest rates, are set at the lenders discretion and therefore do not have to change or may but not by as much.
Simon Butler, Associate Director at Contractor Mortgages Made Easy said: “Almost a third of borrowers are currently sat on the standard variable rate. This is the rate your mortgage reverts onto once your initial deal such as a fixed or tracker rate has expired.”
“Banks should feel pressure to pass on the 0.25% rate cut but ultimately whether your rate is cut depends on your current lender.”
“The average standard variable rate currently sits at around 4.8% but these vary from lender to lender. For example, contractor friendly lender Halifax’s rate currently sits at 3.99% which it has said is still under review following the base rate cut.”
“With a variety of competitive fee-free products on offer it makes sense to explore these options rather than sitting on the lender’s standard variable rate.”
Some examples of 2 year fee-free tracker products that beat the lender’s current SVR:
1. Representative Example – A mortgage of £311,000 payable over 25 years, initially on a base rate + 1.34% rate for 2 years at 1.59% currently and then on a variable rate of 3.99% for the remaining 23 years would require 24 payments of £1,257 and 276 payments of £1,609.48 . The total amount payable would be £474,133 made up of the loan amount plus interest. The overall cost for comparison is 3.63% APRC representative. With £250 Cashback.
2. Representative Example – A mortgage of £311,000 payable over 25 years, initially on a base rate + 1.54% rate for 2 years at 1.79% currently and then on a variable rate of 3.99% for the remaining 23 years would require 24 payments of £1,286.62 and 276 payments of £1,612.26. The total amount payable would be £475,613 made up of the loan amount plus interest. The overall cost for comparison is 3.67% APRC representative. With £250 Cashback.
Article by: Bradley George, Senior Protection Consultant at Contractor Mortgages Made Easy
Media Contact: Sarah Middleton, Public Relations Manager
Tel: 01489 555 080