Bank of England Base Rates drop to 5%. But, what does this mean for you?
On August 1st 2024, the Bank of England announced the new Base Rate, this review generally occurs around eight times a year, usually every six weeks. We interviewed our Company Director to find out a little bit more about what a Base Rate is and how they can affect you.
What is a Base Rate?
It is the rate that the Bank of England charges other banks and other lenders when they borrow money, and it is currently 5.00% as it reduced for the first time in a long while on the 1st of August.
Why are they important?
The base rate influences the interest rates that many lenders charge for mortgages, loans and other types of credit they offer people. The higher the base rate – the higher the Bank of England charges.
How do they affect mortgages?
Mortgage rates often rise and fall in line with the base rate. When the base rate reduces, we often see lenders cutting the cost of their mortgage products, so new fixed rate mortgages get cheaper and anybody with an existing tracker mortgage will notice their payments coming down.
Are they likely to stay at this level or go up/down?
Of course, this is just an opinion, but we think rates will tiptoe their way down over the course of the next 6-12 months. However, we don’t expect significant reductions in quick succession.
Would you recommend purchasing a house now they have gone down or should a buyer wait to see if they go down further?
The problem with delaying a purchase is that in some cases the cost of the property goes up anyway, so holding off could mean you pay more for the same house.
Our mortgage watch scheme keeps an eye on any reductions whilst you’re going through the process of buying a property so we can take advantage of cheaper rates as they come along.
Alternatively, if you take a tracker mortgage, this would give you the advantage of seeing your interest rate reduce accordingly once you completed if further base rate cuts are made.
How important are Base Rates to you as a mortgage advisor? How do they affect the work that you do?
Base rates affect the cost of borrowing and therefore have a fundamental effect on the property and remortgage market. When rates are high or unstable, we find their can be a lack in confidence in borrowing and clients often are worried about affording their mortgages.
As an advisor, we need to understand the trend in the Base Rate and the market conditions, so we can ensure our advice to our clients suits their needs and circumstances and provide assurance in decisions.
Does the Base Rate change affect my current mortgage or does it only affect those looking to purchase property?
If you are paying a mortgage currently, only variable rate products will be affected by Base Rate changes. This includes tracker and discounted mortgages. Any existing fixed rates will not change.
The banks’ product ranges available for new mortgage applications will potentially reduce based on the reduction announced, so borrowing will become marginally cheaper as a result.
Have any other questions to ask one of our mortgage advisors or want to speak to someone about taking advantage of the situation? Use our three contacting points located at the top of the page or give one of our offices a call today.
