COVID-19: How Is the UK Base Rate Affecting Tracker Mortgages and Fixed Rate Mortgages?
Written on 31 March 2020 by
As we outlined in a previous blog post, the Bank of England cut the Base Rate to 0.1% - the lowest ever – in order to try and combat the impact COVID-19 is having on the UK economy.
What impact? Well, with the country-wide lockdown people aren’t spending money or making money.
A few lenders have actually withdrawn some products from the market which means less products are available than normal and there are fewer products with LTVs (loan-to-values) higher than 60% or 75%. Although we expect these lenders and products to return once things improve or surveyors find alternative and satisfactory valuation methods for higher LTVs, we want to give you an explanation of what’s going on right now.
So, what does this reduced base rate mean for borrowers?
About the Base Rate
Lenders use the Bank of England base rate as a direct guide when they set certain mortgage rates. The significant cut to the base rate would normally cause some rates – especially tracker rates – to drop too. Not all rates depend on the base rate – some follow the money market swap rates which are influenced by the base rate - so there are some rates that have not been affected in the same way or at all.
Tracker Mortgage Rates
What Are Tracker Rate Mortgages?
Tracker rate mortgages are a type of mortgage product with an interest rate that directly follows the Bank of England base rate. Tracker rates move in line with the base rate. They’re usually above or below the base rate by a set margin. All tracker rates are currently above the base rate as it’s extremely low right now.
How Has the Base Rate Affected Tracker Mortgages?
The drop in the base rate has greatly affected both existing and new tracker mortgage products. If you’re an existing tracker rate borrower, you’ll likely see your payments reduce from April 2020 onwards unless your tracker product has a minimum rate below which it cannot go. The base rate is incredibly low right now so – even though they’re above the base rate – tracker rates are also a fair bit lower than usual. In fact, they’re the lowest mortgage rates currently on the market in the UK.
Here’s Our Mortgage Advice
If you’re already thinking about a remortgage or are coming to the end of your fixed term/introductory deal, we recommend you consider switching to a tracker rate mortgage. But not just any tracker rate mortgage; one without any ERCs (early repayment charges).
ERCs are fees you must pay if you leave your current mortgage before your fixed term/introductory deal ends. Nearly every fixed rate mortgage comes with ERCs.
Choosing to switch to a tracker rate with no ERCs means that you can make the most of a low tracker rate product while the base rate remains low and have the freedom to remortgage to a new product at any time. This new product would usually be a fixed rate and you would remortgage when you think the base rate is going to increase and your tracker will rate will rise with it.
A tracker rate mortgage might suit you if:
- You’re happy to take the risk that they’ll rise in future
- You want a deal with no ERCs
What Are the Best Tracker Rates Right Now?
Some of the best residential tracker rates on the market (30.03.20) are:
- Barclays, 0.74% above base rate for 2 years - 60% LTV, minimum loan £500k - £2m, £1,999 fee, free valuation plus free standard remortgage legal service on remortgages
- Barclays, 1.04% above base rate for 2 years - 75% LTV, minimum loan £5k - £500k, £0 fee plus free valuation and free standard remortgage legal service on remortgages
You can compare mortgage deals and trackers rates from across the market with our free tracker rate best buy tool.
Fixed Rate Mortgage Rates
What Are Fixed Rate Mortgages?
A fixed rate mortgage is simply a mortgage with a rate of interest that doesn’t change for a set period of time. They’re popular among many people as they offer a lot of stability and you can budget easily as you know what your payments will be every month.
How Has the Base Rate Affected Fixed Rate Deals?
Obviously, if you already have a fixed rate mortgage, your rate will be unaffected by the base rate change. The drop in the base rate hasn’t affected new fixed rates as some might expect either. Lenders had already priced in a rate reduction because swap rates had dropped in expectation of the base rate falling at the end of January 2020. This means that fixed rates were already low before the base rate was actually cut in March. Unfortunately, fixed rates can’t go much lower even though the base rate is so low, as lenders could go bust.
Here’s Our Advice
If you want to take advantage of the really low fixed rates that are available today then talk to an adviser who’ll recommend the best lender and product to fit your needs and circumstances. Ask your adviser to pick a lender who would allow you to switch products should rates actually fall before completion. That way, if rates do fall you’ll be able to take advantage and if they go up you’ll be glad you submitted an application early.
What Are the Best Fixed Rate Mortgage Rates Right Now?
Some of the best residential fixed rate mortgages on the market (30.03.20) are:
- Nationwide, fixed for 2 years at 1.14% - up to 60% LTV with £999 fee plus free valuation and free standard remortgage legal service for remortgages
- Natwest, fixed for 2 years at 1.26% - up to 75% LTV with £995 fee plus free valuation and standard remortgage legal services for remortgages
- Nationwide, fixed for 5 years at 1.39% - up to 60% LTV with £999 fee plus free valuation and standard remortgage legal services for remortgages
Use our free mortgage best buys tools to compare mortgage rates.
If you want some more information, call us on 0330 433 2114 or simply send us an enquiry.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY DEBT SECURED ON IT.
The blog postings on this site solely reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.