By Bea Patel, TLE Property Editor and Director of Shop for an Agent
The Bank of England has cut interest rates from 0.5 per cent to 0.25 per cent after a record seven years. The cut comes as an attempt to offset the threat of a post Brexit vote recession.
Many homeowners will immediately benefit from reduced monthly mortgage repayments of the back of this cut, but this applies to borrowers with tracker mortgages, whose rate is linked to the Bank of England’s base rate. There are around 1.5m borrowers will this type of mortgage.
A borrower with a tracker mortgage of £150,000 with the current 2 per cent base rate will have their repayments reduced by £19 per month – from £673 to £654.
Borrowers with interest-only mortgages will see an even bigger monthly reduction. With a mortgage of £150,000, their monthly repayments will drop by £32 each month – from £313 to £281.
But it’s not good news for all homeowners. Those on a fixed-rate mortgage will see no benefits – their repayments will remain the same until their mortgage deal ends.
Those on variable-rate mortgages should check their small print, as they may expect repayments to fall but may find it doesn’t. Some lenders use their own version of base rates and some have a barrier as to where they will not reduce rates further.
For first-time buyers, mortgages will become more affordable, but it won’t make it easier to buy a home. Tracker mortgage payments will fall and new deals will appear. But with increasing unaffordable house prices and a shortage of properties, home ownership is still beyond the reach of some first-time buyers.