How does the Base Rate directly affect me and my mortgage?
New mortgage - For potential buyers looking to secure a mortgage for the first time, the mortgage interest rates on offer will be determined by the economy and in turn, the current base rate. If the base rate is high, then interest rates are likely to be more expensive. If the base rate is lower, then many lenders will probably lower their mortgage products too in order to remain competitive, therefore helping with more affordable monthly mortgage costs when you buy your first home.
Existing borrowers - For existing homeowners who already have a mortgage, the type of mortgage you are on will determine whether your monthly repayments are affected when the base rate changes:
- Fixed Rate - If you are on a fixed rate deal, your current payments will be unaffected by any base rate changes as your monthly payments are fixed. You won’t benefit from any decrease, but similarly you won’t pay more in the event of an increase. If your fixed rate is coming to an end, you may find it beneficial to look around for a better mortgage deal you could switch to. Please note that you may have to pay an early repayment charge if you change to a new product before the end of your current deal.
- Standard Variable Rate (SVR) - If the base rate lowers then you may benefit from lower monthly payments if your existing lender decides to pass on any savings by also lowering their current SVR. If the base rate increases however, then your existing lender could decide to increase their SVR, meaning your payments will go up. An important point to note is that your mortgage lender can choose to change their SVR at any time, without notice and independently of any base rate change.
On this basis, if you are currently on an SVR it is always worth speaking to a mortgage consultant to see if there is potentially a cheaper fixed rate or tracker deal out there which may save you money. Whilst on an SVR, you are usually free to switch to another deal without incurring early repayment charges associated with a fixed rate mortgage for example.
- Tracker Rate - A tracker rate tracks the base rate so if the BoE decide to lower the base rate, you will immediately benefit from lower monthly repayments due to your mortgage tracking the drop in the base rate. This works both ways however – any increase in the base rate will mean you aren’t protected from immediate increases to your monthly mortgage repayments.
Another important thing to consider is when looking at your monthly repayments, low rates aren’t the only thing to look for when searching for the ‘cheapest deal’. You need to look at the overall cost of the mortgage product, factoring in additional fees, lender criteria and the length of time (mortgage term) you wish to borrow for. To discuss your options in more detail, a Countrywide Mortgage Consultant can compare thousands of deals from a panel of high street and specialist lenders, to find the best deal for you.
Use our handy calculator to see what your estimated monthly payments could be based on different interest rates:
