MORTGAGE lenders have begun slashing their interest rates after the Bank of England cut its base rate today.
More than a million homeowners on certain types of mortgages will see a decrease in their monthly payments following the decision.
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Barclays, Nationwide, HSBC and Lloyds have all confirmed their customers on standard variable rate (SVR) and tracker mortgages will benefit within days.
The Bank of England reduced its base rate from 4.5% to 4.25% today in a widely expected move.
The base rate influences interest rates that lenders offer on savings and borrowing, including mortgages.
This is the fourth interest rate cut since 2020, and a further three rate cuts are expected over the next year.
The Bank last cut rates back in February, before holding them steady in March.
This latest cut should bring relief to the millions on SVR and tracker mortgages as these track the base rate.
But those hoping to take out a fixed-rate mortgage are unlikely to see too many further interest rate cuts.
That’s because markets had already priced in today’s expected base rate cut, so some lenders have already reduced their fixed mortgage rates.
In fact, many have been engaging in a price war with some offering rates below 4%.
What are the different types of mortgages and how will they be affected?
Those on tracker and standard variable rate (SVR) mortgages typically see an immediate change in payments.
Tracker mortgages usually involve paying the base rate plus an additional percentage in interest each month.
A standard variable rate mortgage is what you revert to once any initial mortgage term ends.
This rate will change in line with the base rate and is usually higher than any initial introductory rate.
Meanwhile fixed-rate mortgages have a set interest rate for an agreed period of time – often two or five years.
That means if you’re on a fixed-rate mortgage, your interest rate won’t fluctuate with the base rate until your agreed mortgage term ends.
The vast majority of homeowners – more than 7.1million people – are on fixed-term mortgages.
Roughly 629,000 people are on tracker mortgages and 693,000 on SVRs.
The average homeowner on a tracker mortgage will see their monthly repayments fall by nearly £29, according to UK Finance.
This could add up to a saving of nearly £350 over the course of a year.
Those on a standard variable rate (SVR) mortgage could see their monthly payments fall by £13.87, assuming that their lender passes on the base rate cut in full, which could add up to a saving of nearly £170 over a year.
What is the base rate and how does it affect the economy?
NINE members of the Bank of England’s Monetary Policy Committee meet eight times each year to set the base rate.
Any change to the Bank’s rate can have wide-reaching consequences as it directly influences both:
- The cost that lenders charge people to borrow money
- The amount of savings interest banks pay out to customers.
When the Bank of England lowers interest rates, consumers tend to increase spending.
This can directly affect the country’s GDP and help steer the economy into growth and out of a recession.
In this scenario, the cost of borrowing is usually cheap, and the biggest winners here are first-time buyers and homeowners with mortgages.
But those with savings tend to lose out.
However, when more credit is available to consumers, demand can increase, and prices tend to rise.
And if the inflation rate rises substantially – the Bank of England might increase interest rates to bring prices back down.
When the cost of borrowing rises – consumers and businesses have less money to spend, and in theory, as demand for goods and services falls, so should prices.
The Bank of England is tasked with keeping inflation at 2%, and hiking interest rates is a way of trying to reach this target.
In this scenario, the losers are those with debt.
First-time buyers will lose out to cheaper mortgage rates, and those on tracker or standard variable rate mortgages are usually impacted by hikes to the base rate immediately.
Those on a fixed-rate deal tend to be safe if they fixed when interest rates were lower – but their bills could drastically increase when it’s time to remortgage.
The cost of borrowing through loans, credit cards and overdrafts also increases when the base rate rises.
However, the winners in this scenario are those with money to save.
Banks tend to battle it out by offering market-leading saving rates when the base rate is high.
Several lenders have confirmed to The Sun that they will be cutting rates on their SVR and tracker mortgages following today’s base rate decision.
Even if your lender has announced rate cuts, the timing of when your repayments decrease depends on your payment schedule.
We’ve listed all the lenders cutting mortgage rates below.
Barclays
The major bank has confirmed all its mortgage products that track the base rate will decrease by 0.25%.
Existing customers will see their rates change from June 1.
New customers will have access to the new lower rates from May 9.
Barclays’ standard variable rate mortgage is 3.49% above the base rate.
It currently stands at 7.99%, but following today’s announcement it will drop to 7.74% on June 1.
That means if you have a £250,000 mortgage over a 25-year term, your monthly payments would drop from £1,928 a month to £1,887.
This equates to £41 a month, or £492 over the year.
Nationwide
Nationwide customers will also see interest rate reductions of 0.25%.
Those on standard variable rate mortgages will start getting their new rate on June 1.
It will drop from 7.24% to 6.99%.
Tracker mortgages will also reduce on June 1.
Interestingly, Nationwide is also reducing the rates on some of its fixed-term mortgages.
The lowest remortgage rate now stands at 3.84% and is available on both the two and five-year fixed rate products at 60% Loan-to-Value (LTV) with a £1,499 fee.
Switcher rates for existing customers also start from 3.84%, but with a lower £999 fee.
These will be available from May 9.
Lloyds
Homeowners with Lloyds will also see changes to their mortgage payments on June 1.
The Lloyds Bank Homeowner Variable Rate currently sits at 7.99% but will reduce to 7.74%.
The Lloyds Standard Variable Rate, currently at 6.5%, will decrease to 6.25%.
The bank said it will be contacting all customers who will see a change to their monthly mortgage payment to let them know what it means for them.
It added: “We recently reduced selected fixed rate mortgages and continue to monitor the market to ensure our rates are competitive.”
Halifax
Halifax, which is part of Lloyds Banking Group, will also decrease its interest rates from June 1.
The Halifax Homeowner Variable Rate will reduce from 7.99% to 7.74%.
Its standard variable rate will also drop from 7.99% to 7.74%.
HSBC
The bank has also confirmed its tracker mortgage rates will reduce from tomorrow.
They will reduce by 0.25% in line with the base rate.
However HSBC said its standard variable rate mortgage remains “under review” and it will “communicate with customers in due course if changes are made”.
The rate currently sits at 6.74%, after it was slashed from 6.99% in March.
Virgin Money
Virgin Money has confirmed its standard variable rate mortgages will reduce by 0.25%.
The rate currently is 7.49% so it will reduce to 7.24%.
However customers will have to wait a little longer for their mortgage payments to fall, as the new rates will be effective from July 1.
How to get the best deal on your mortgage
IF you’re looking for a traditional type of mortgage, getting the best rates depends entirely on what’s available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
