Welcome to this week's
Finance Fridays. Last week we were looking at the rise in popularity
of Contactless
cards and discussing how safe they are to use. This week we are
talking about the interest rate change that was announced by the Bank
of England and how this affects mortgages.
What has happened? -
Last Thursday the Bank of England announced the first cut in the Bank
Rate since March 2009. This means the interest rate has gone from
0.5% to 0.25%. This rate change affects what mortgage rate lenders
offer and therefore the monthly cost of paying the mortgage for
homeowners depending on what type of mortgage rate they are on.
Standard Variable Rate
– Often referred to as the SVR this is the one basic rate that
lenders offer. If you have been on a special rate and it has run out
you will be transferred onto this rate if you don't make the effort
to move to a better deal. It's well known that mortgage lenders make
a lot of money from borrowers on the SVR as it is usually always
higher than any other rate they offer.
The variable nature of the
rate means that at anytime the mortgage lender can change the rate
even without the Bank of England announcing a change in the Bank
Rate. In the past lenders have been very quick to increase rates when
the Bank Rate has risen but far less keen to decrease them when they
go down. Barclays, Nationwide and Santander announced straight away
they would change their SVR from 1st September whilst
other high street lenders have said their rates are 'under review'.
The Governor of the Bank of England, Mark Carney, has said there is
'no excuse' for lenders not to pass the decrease on but they are not
obliged to.
Fixed Rate – If you
are currently on a fixed rate mortgage deal then last Thursday's
announcement will have no affect on you at the moment. A fixed rate
is just that so it will not go up or down during the term of the
deal. If things stay as they are once your deal comes to an end a new
fixed or tracker rate should be lower so see what your lender offers
or shop around. If you don't do anything you will revert back to the
SVR which will be higher.
Tracker – These
type of rates track the Bank of England Bank Rate. In recent years
they have effectively been fixed rate as the Bank Rate has changed at
all. However now borrowers should reap the benefit of being on a
tracker rate. There are some caveats to this though. Some tracker
rate deals have a 'cap and collar'. This means the interest rate
won't go higher or lower than a specified rate. While most lenders
are passing on the tracker rate decrease from 1st
September Virgin Money are making their customers wait until 1st
October.
Remortgaging – If
you are on a SVR there is no better time to think about moving onto a
fixed or tracker rate mortgage. First approach your lender and see
what they can offer. If you have had no missed payments it should be
straight forward as many won't require any new surveys to be
completed. Have a look online for deals for existing customers. If
you want to shop around be prepared for a new lender wishing to
charge a fee for new customers which can add up to over £1,500. I've
found a great fixed 2 year rate of 0.99% but it requires a valuation
fee of £173 and a booking fee of £1,499. Over the term of the
mortgage it may work out cheaper to the overall cost to pay a fee and
take the lower interest rate. If you you to compare mortgage rates
that have fees and no fees there's a comparison calculator on Money
Saving Expert.
If you are in the middle of
a fixed or tracker rate deal your current lender may allow you to
move to another without any charges but do check with them. However,
if you choose to move elsewhere you will probably find you will need
to pay an early repayment charge which will be a percentage of the
outstanding mortgage amount.
Have you got a mortgage rate
that will be affected? Are you thinking about remortgaging?
We were joined last week by
Jane from Maflingo
who has shared her 10 tips to reduce food waste and save money.
If you are confused about use by, sell by, display by and best before
dates have read of Jane's explanation.
If
you want to join in with this week's Finance Fridays then add your
link to the linky below. Any post concerning financial matters is
allowed. Full details here.
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Tuesday 16th
August
2016 to join in.
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I was fascinated last week when the BoE cut the interest rate - I didn't think it would get any lower but as we are on the SVR it is great news for us. Thanks for keeping us informed - it's good to be aware of what is going on with interest rates.
ReplyDeleteThere are times I am glad I rent instead of own as all this baffles me but this post had helped me to understand much better!
ReplyDeleteWe are locked in for a few years at the moment on a fixed rate and find it gives us some security. I'm not sure that the rate cut will have a massive effect on fixed rates because of the realities of buying trances of money on the markets (worked for a mortgage lender for years), but certainly a good time for a shorter term fixed rate.
ReplyDeleteWe are on a fixed rate so we know where we are every month, I think it's due to run out soon though so will see what other deals are out there
ReplyDeleteThanks for sharing this - it'sa minefield isn't it x
ReplyDeletethanks for this, I find it super confusing at the best of times! xx
ReplyDeleteI always learn so much from your blog! Thank you! :)
ReplyDelete