I’m about to get a mortgage:
What does the base rate change mean?

Stuart Bowman

5-minute read

Last updated: 26th March 2020

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Update – March 19th: The Bank of England has cut the base rate of interest to a record low of 0.1%

The Bank of England has cut the base rate of interest to a record low of 0.1% as a result of the economic impact the coronavirus is having on UK businesses and households.

Previously monetary policymakers from the Bank of England followed the US Federal Reserve’s lead and cut the base rate of interest from 0.75% to 0.25%.

Why has the base rate change happened?

These are the first unscheduled interest rate changes for 12 years and is merely intended to mitigate the economic impact of the coronavirus outbreak.

The Bank itself said the move is designed to aid businesses and households. They suggested the economic shock could be “sharp and large” but they also expect it to be temporary.

What does the emergency interest rate cut mean for mortgage rates?

Mortgage rates are already at historic lows and their relationship with the base rate is loose, so we are not expecting them to fall anytime soon. In fact HSBC have recently announced a small rate rise.

To put it in perspective, over the last 18 months, the base rate has increased from 0.25% to 0.75% and both fixed and variable rate mortgage deals have seen little impact.

The exception to this could be base rate tracker mortgages – but even these may not be impacted as the BoE’s action is thought to only be temporary.

Mojo Co-founder Nick Sherratt said:

“It’s a positive move from the Bank, and should aid businesses through a potentially problematic economic period.

“The impact on individual households will be less. Mortgages have been at near record lows for some time now and it’s unlikely to think there’s much room for them to fall further, and there certainly won’t be a 0.5% fall across the board.

“Tracker mortgages could see a reduction as a direct result of the Bank of England’s move, but we’d never advise someone to get a tracker mortgage based on this news alone."

Update - March 20th: Coronavirus-related unemployment fund and mortgage applications

Chancellor Rishi Sunak announced, for the first time ever, the government will set up a job retention scheme which has the capacity to pay up to 80% of an employees wages.

As well as the wider economic implications, where this is intended to provide further stability across the macro economy, it is particularly welcome news for lenders and those thinking about applying for a mortgage.

These measures are designed to allow customers to be more confident in making big financial decisions - the government helping companies secure jobs is a big statement.

If you want to apply for a mortgage now and are unsure about how your economic circumstance may change in the coming weeks, please speak to a Mojo expert. that is what we are here for.

Update – March 26th: Lenders make temporary changes to mortgage deal ranges

Halifax has withdrawn all mortgages deals above 60% LTV, except for product transfers and further advances. The intermediary changes also affect the BM Solutions and Scottish Widows brands.

RBS, which also includes Natwest and Ulster Bank, has withdrawn all of its tracker mortgages deals in a temporary move.

Santander has increased its tracker mortgage rates 0.3% due to “current market conditions”.

Barclays has temporarily withdrawn 60 mortgage products. These are mainly deals over 60% LTV across its range.

Update - March 12th: Santander, Lloyds and Halifax cut SVR rate

Santander has announced an Standard Variable Rate (SVR) cut following the Bank of England's decision to reduce the base rate to 0.25%.

The lender has said its SVR mortgages will change from April.

In reality this still does not represent good value for mortgage customers - even after the bank's cut, the rate will be 4.49%. Currently, most customers are looking to fix at around 2-3%.

However, it is a welcome move from the bank that does save money for it's current SVR customers who do not want to remortgage on to a lower rate.

Lloyds and Halifax have also passed on the rate change to their SVR mortgages.

Update - March 13th: Nationwide increase tracker rate

All new 2-year tracker rates from Nationwide will rise 0.15% for today (March 13th).

However, Nationwide also become the latest lender to pass on the full Bank of England cut to existing tracker rate and SVR rate customers.

The lender’s Base Mortgage Rate is now 2.25% and its Standard Mortgage Rate is 3.74%.

I’m currently applying for a mortgage – what's the advice?

If you’re currently in the process don’t make a knee-jerk decision based on this emergency and temporary announcements.

In general, it’s a good time to be applying for a mortgage, work with an adviser to find the best deal for your personal circumstances at all times, and the only way to secure a rate you are happy with is to apply.  

Self isolation guidance may impact you if you plan on moving house, however.

With the market changing on a daily basis, it’s really important you speak to a broker or a lender about your individual circumstances. When looking at what advice the government has given on house moves, cabinet minister Michael Gove has said that if transactions have been committed to, they should go ahead, however, he also said that people should,if at all possible, seek to stay in their current home. 

When it comes to mortgage offers, these are usually for 6 months and lenders usually have the option to extend. To find out if you can extend the offer, you’ll be able to check this on your offer letter.

Update – March 26th: Will coronavirus stop me remortgaging?

No.

Some lenders have limited their mortgage ranges and that may mean your choices are smaller than a few weeks ago.

If you have an LTV of around 70% or lower, you should still get a very good deal.

If you don't and want to avoid high SVRs, you can remortgage with the same lender in a process called a product transfer.

I want to remortgage because of the low base rate

As mentioned, there is no guarantee the full 0.65% reduction will be passed on consumers. In fact it almost certainly won't be. However, now is a great time to by eligible for a remortgage. Go here for more info on the base rate cut and mortgaging

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