Interest rate cut ‘surprise’ for property market but will it affect your mortgage payment?
The Bank of England has announced an emergency cut to interest rates today following the coronavirus outbreak. Borrowing rates will hit an all time low as rates are reduced from 0.75 percent to 0.25 percent. How will you be affected?
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The bank announced the cuts to try and help the economy as the coronavirus worries continue to rise.
Although some had predicted a change in interest rates, a drop of 0.5 percent was much larger than many expected, Louisa Fletcher, Property Expert, explained.
She told Express.co.uk: “The emergency rate cut by the Bank of England this morning was a surprise, both in terms of the timing and the size of the reduction.
“Following the performance of the FTSE over the last week, many had thought that a reduction would have been revealed later this month on the day that the Monetary Policy Committee announcement was scheduled.
“Even then, most had thought it would be a cut of 0.25 percent.”
The expert explained the dramatic drop could show just how serious the virus will impact the economy.
“These factors are an indicator of how seriously the UK economy could be affected by COVID-19, and the fiscal stimulus that could be unleashed to deal with such an unprecedented event,” Louisa continued.
“It’s also worth noting that this is the lowest that the Bank rate has been since August 2016, and it’s also the first unscheduled interest rate decision since the 2008 financial crisis.”
Will your mortgage be affected?
Homeowners are sure to notice the impact of the low interest rates, Louisa explained.
Mortgage payments are likely to be lowered although it is not certain what will happen for those with fixed rate mortgages.
She said: “In real terms, those on a tracker product linked to the Bank rate should see a reduction on their next mortgage payment.
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“However, the question is now around if and how lenders reprice fixed rate mortgages.
“If this is only a temporary term interest rate cut, then it’s quite possible that most lenders will retain their current pricing, although it may well be the case that a couple introduce ‘headline rates’ in response, albeit that the criteria attached may mean only a few borrowers would find them relevant.”
Although little is likely to change for fixed rate mortgages straight away, they could be affected if the situation continues.
The expert also suggested other lenders could start follow suit and also lower their rates if coronavirus continues to have an impact.
Louisa explained: “However, if the situation continues for more than a few weeks, it’s quite possible we’d start to see a broader knock-on impact on the cost of fixed rate borrowing.
“Given that yesterday two lenders, RBS and Natwest, introduced measures aimed at assisting mortgage customers who contract COVID-19, if the crisis deepens it’s not a stretch to suggest that other lenders may follow suit.
“They will also perhaps hopefully provide significant assistance for any mortgage prisoners who may be one of the worst groups affected financially by any short-term economy friction.”
Although it is not known what will happen, the expert explained banks could provide assistance for those who are worst affected.
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