Mortgage repayment options following BoE Base Rate cut

On Thursday, Aug 1, the Bank of England cut the base rate of borrowing for the first time in over four years.

It was a close call, with the MPC voting 5-4 in favour of the 0.25% cut, which now leaves the Base Rate at 5.0%.

Nationwide had, for a select few borrowers, already breached that, releasing a 3.99% deal at the end of July.

Since then, other lenders have followed. But every deal below 4% on the market so far:

• is for home movers,
  • (so first-time buyers and remortgaging are out),
• requires 40% deposit/equity,
• and is a five-year fixed deal.

So, what does this Base Rate cut really mean for first-time buyers and existing homeowners?

Factors that mean we won’t see a glut of mortgage rate cuts

1.6 million fixed deals were slated to expire in 2024. Many of those deals would have been taken out when interest rates were floating between 1%-2%. Understandably, those homeowners haven’t rushed to jump to a new deal between 5%-6%.

From conversations with our clients, we know many have been sitting on their lender’s SVR, waiting for a deal closer to the rate they’re on. While the Base Rate cut from BoE is good news, it’s not a magic wand.

Many other factors are preventing lenders from being bolder with their rates:

• Core services inflation is proving sticky;
• Wage growth isn’t coming down at the same rate as headline inflation;
• Plus, with so many potential flashpoints across the globe that could affect consumer prices, it would be folly for the BoE to be too bold right now.

BoE Governor warns policymakers: it’s not job done yet

After holding the Base Rate at its 16-year high for seven continuous Committee meetings, Andrew Bailey recognised that this 0.25% drop marked “an important moment in time.”

But he also warned that keeping inflation down wasn’t “mission accomplished yet.” To ensure the Bank has the best chance of keeping a lid on UK inflation, he urged policymakers to “be careful not to cut interest rates too quickly or by too much”.

As for further cuts to the Base Rate, we’re none the wiser. His language doesn’t assure us that we’ll see another rate cut this year.

However, some forecasters are suggesting there’ll be a cut around the Budget in Autumn. But that depends on Labour’s first Budget and the factors mentioned earlier coming into alignment to give the MPC confidence to drop the Base Rate further.

So, what is the reality for people looking to remortgage?

If your current deal has expired or is about to, you have three options:

• tracker mortgage
• remortgage;
• your lender’s SVR.

Which is right for you will depend on:

• your position with your current deal now;
• what flexibility you have in your budget;
• your outlook, expectations and aspirations.

Interim tracker mortgage

Many of our clients due to remortgage are, instead of committing to a 2-year fixed rate deal, taking out tracker mortgages. It’s a sensible decision.

The interest rate you pay on a tracker is an agreed percentage above the BoE Base Rate. So, when the Base Rate dropped last week by 0.25%, the repayment rate for people on trackers would have dropped by 0.25%, also.

There are two types of deal on the market worth considering. First is the fee-free tracker, with no ERCs. Then, there are tracker rate mortgages with fees, but with better interest rates than the fee-free deals.

If you’ve slipped onto your lender’s SVR but don’t want to commit to a new fixed deal, a tracker is the perfect stopgap product.

Remortgage: our rate monitor service

At some point, the 1.6 million homeowners whose deals expire this year will have to remortgage. This is where our rate monitor service is invaluable. And, it’s simple to use.

Between six and eight months before your current deal’s expiry date (or fewer if you’re almost there), you can lock in a new rate with us.

We then monitor that rate for the duration between the date you lock it in and when your new deal is about to begin. If we find a rate that’s lower than the rate you’ve locked in during that window, we switch you to it.

If rates go up, it doesn’t matter: you’ve ringfenced the rate you chose when locking in your deal.

Once you give us the go-ahead, you have to do nothing else. We’ll do all the monitoring and switching for you. You’ll be safe in the knowledge that you’re paying the lowest rate during that six-, eight-, or fewer-month period.

Staying on your lender’s SVR

There are also clients sticking it out on their lender’s SVR. They’re waiting to see if interest rates are going to take a sudden dive. [Heads up: they’re not.]

We’re not going to see a slew of sub-4% deals across whole ranges of mortgages any time soon. Even before inflation proved so sticky, in May 2024 the IMF forecast that mortgage rates won’t touch 3.5% in the UK until late 2025. Given the current economic climate, it wouldn’t surprise us if they were to now revise that forecast, pushing the date out further.

As for this year, we’ll do well if average 2- and 5-year fixed deals settle where they are now, between 4.5% and 5.5%. So, if you have a sizeable mortgage and you’re sat on your lender’s SVR awaiting sub-4% deals to become the norm, you’re throwing money away.

Yes, if you choose a tracker with the lowest interest rates, you’ll pay a fee. But, because you’re paying 8% on your lender’s SVR, you’ll reap that fee back in no time. Plus, you’ll have the confidence of paying only a small percentage above the Base Rate for the duration of your tracker mortgage.

Whatever your situation, burying your head in the sand isn’t the answer. To discuss options specific to you, call us today for a no-obligation chat. We’ll give you our professional opinion of the repayment option best for you right now. Do we have a deal?

Author: John Yerou

John Yerou is the owner and founder of the award-winning Mortgage Quest Ltd and its subsidiary brands.

In 2004, John began his career in financial services as an independent mortgage advisor and broker. He's since been instrumental in negotiating bespoke mortgage underwriting criteria for professional contractors with many high street lenders.

As such, John's one of the most respected and recognisable names in securing mortgages for the UK's flexible workforce, incorporating independent professionals and the self-employed.

His recognition as the go-to mortgage expert has grown exponentially, reflected in citations and his own publications in both national and contractor-oriented press.

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