The Bank of England announced an emergency cut in interest rates this morning in a bid to shore up the economy amid the coronavirus outbreak. Rates were reduced today from 0.75 percent to 0.25 percent, taking borrowing costs down to the lowest level in history.
Mark Carney, the Bank’s governor, said: “The Bank of England’s role is to help UK businesses and households manage through an economic shock that could prove large and sharp, but should be temporary.”
But the decision has sparked fears among mortgage holders that it could affect their payments.
And it’s good news and bad news.
Money Saving Expert wrote: “Some mortgages will get cheaper. Homes with tracker mortgages – whose rates ‘track’ the base rate – should see their rates drop.
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“However, fixes won’t change and with others it’s not clear-cut.”
Martin Lewis explained: “The financial winners are those on variable and tracker-rate mortgages.
“They will see cost cuts of – very roughly – £25 per month per £100,000 of mortgage (use the MSE Mortgage Calculator to work out your exact reduction).
“And while it’ll take a week or two to filter through, it’s likely we’ll see the rates of new mortgage fixes drop too – meaning it will be a very cheap time to remortgage.”
Essentially this means rates won’t change during the fixed period – but if you remortgage in future, any new fix may end up being cheaper now.
It also means lenders could cut standard variable rate (SVR) or ‘discount’ mortgages.
Martijn van der Heijden, Chief Strategy Officer – from online mortgage company Habito, said: “The measures announced this morning by the Bank of England sees interest rates back at the lowest level they have been, something not seen since the cut after the Brexit vote in 2016.
“This, the Bank says, is a move to mitigate the “sharp, large and temporary” impact of the coronavirus crisis.
“The Bank hopes these precautionary measures will bridge coronavirus related economic disruption and only goes to highlight that it could become a more challenging environment for homeowners and homebuyers in the coming months.
“Several lenders have already said they’re going to offer up to a 3 month ‘mortgage holiday’ for customers affected by coronavirus and more are expected to outline the support they will offer.
“For those on a variable rate mortgage, their monthly payments should now come down which will be welcome news.
“However, for homeowners on a fixed-term mortgage, there will be no change to their monthly payments and for those on their SVR, monthly repayments may not necessarily change.
“In any case, any change to monthly repayments will be something individual lenders will decide.
“If people are struggling to pay their mortgages, they should always contact their lender – especially as some have indicated they will be flexible if income is temporarily disturbed as a result of the Coronavirus.
“In general, people could also try to create a small cash-buffer by seeing if they can save money by switching their mortgage, through a free, whole-of-market mortgage broker.”
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