How will the Base rate impact the remortgage market?

Welcoming the Bank of England’s decision to cut the base rate to 2%, financial services provider Think Money highlighted the positive effect this could have on people looking for a remortgage.

“Many people paying – or looking for – a mortgage will welcome the base rate falling to levels we’ve not seen in over 50 years,” said Melanie Taylor, Head of Corporate Relations at Think Money. “However, we anticipate the greatest sense of relief will be among people coming to the end of their mortgage term.

“Primarily, this is because these are the people who are tied to a specific time period. Most people moving house or buying their first home will have a degree of flexibility in the timing of their move, but when a mortgage term expires, it expires. This is an absolute deadline – and before they reach that point, the homeowner should have decided whether they’ll revert to their mortgage provider’s SVR or look for a new mortgage deal altogether.

“To anyone in that situation, the base rate cut will come as a great relief, as it could make either option more appealing. In some cases, it could make all the difference between being able to stay in the house and having to sell it.”

However, as the Council of Mortgage Lenders (CML) has pointed out, lenders don’t necessarily benefit from cuts to the base rate in the way that many people believe. As the CML website states: ‘the cost of funds to lenders depends not on Bank rate, but on a range of other factors, including what they have to pay savers to attract deposits, how much it costs them to borrow in money markets, and the costs of holding capital and sufficient liquidity … Far more important than the Bank rate in determining lenders’ funding costs is the three-month London inter-bank offered rate (libor)’.

Nonetheless, the rate which the Bank of England charges lenders is still an important factor, affecting the entire monetary system: “Many mortgage providers passed the full 1.5% of November’s cut on to borrowers on their SVR deals. Various lenders have already announced they will pass on all or most of this latest reduction too, making the thought of reverting to their SVR much more attractive.

“At the same time, this reduction in the base rate will make it easier for lenders to lower the interest rates they charge for new mortgages of all kinds, helping people remortgage at a more attractive rate.”

But homeowners at the end of their mortgage term won’t be the only ones to benefit from the base rate cut. “According to the Bank of England’s November 2008 Inflation Report, around 7% of mortgagors are spending 35-50% of their pre-tax income on their mortgage payments – and 5% are spending 50%-100%. Given the historically high salary multiples we’re seeing in today’s mortgage markets, the ability to remortgage at a lower rate could make all the difference to the finances of many homeowners.”

“Of course, there’s always the question of Loan-to-Value (LTV), a particularly important ratio in today’s economic environment: with house prices dropping and credit relatively scarce, lenders are reserving the best deals for people with LTV ratios of 60% or less. Even so, a base rate of 2% is indisputably good news for most homeowners with mortgages across the country, whatever their situation.”

Getting Help With Your Mortgage

Getting a mortgage, particularly for first time buyers is a daunting task. You can never really be sure if the advice you receive from your bank or third party lender is in your best interest as opposed to theirs. A mortgage is serious and you must be 100% that you are getting the best deal and that you’re fully aware of the terms, conditions and clauses within their contract. There have been too many stories of people losing their homes by taking out mortgages with certain providers and not reading the terms and conditions properly.

A way around this issue is by seeking third party, independent advice when it comes to your mortgage. An example company would be All Talk Mortgage. These guys offer independent mortgage loan help and consulting to current and future homeowners. All Talk Mortgage is completely unbiased when it comes to the advice they offer so you can be sure they are acting in your best interest. They will also review the documents and offers provided to you by your potential lender so you can be sure that the deal is fair and you don’t end up paying more than you need to or more importantly, losing your property.

The Blanket Around Your Mortgage

Mortgage is one of the major financial liabilities for many homeowners across the globe. However, taking protection insurance for their mortgage is not something that everyone cares to plan for, or thinks about. Mortgage payment protection insurance is necessary, as you never know when life throws a surprise your way. Uncertainties in life are always lurking around the corner, waiting to capitalise on a weak moment. You may lose a job, fall ill or become indisposed due to an accident. It just gets worse if this happens to the only earning member of the family. Insurance protection packages for mortgage repayments ensure that monthly payments are taken care of, and your mortgage does not become an undesirable burden.

Insurance policies such as these are cheap, affordable, and even allow mortgage holders to set aside a fixed amount every month as pay-outs. The terms and conditions of the insurance schemes can vary based on the type of mortgage payment plan. People generally do not hesitate in taking up home insurance, but are often indecisive on the protection-related insurance front. It is advisable to treat mortgage protection insurance with the importance it deserves, as eventually it only works in your favor.