The Bank of England (BoE) has just announced a base rate cut of 0.5 percent following the outbreak of Coronavirus across Europe. This represents the biggest cut since the financial crisis back in 2008. This emergency interest cut from 0.75 percent to 0.25 percent has been done by BoE to ease a possible recession and an overall slowdown in the economy if coronavirus spreads further into the UK.
What will be the expected impact for the property market following this base rate cut? Here is what is anticipated to happen.
- Better mortgage rates
- Will not apply to fixed-rate mortgages
- Good news for landlords
- Those applying for a mortgage will benefit
- Positive news for property investors
Better mortgage rates
A historically low base rate will likely mean good news for those with mortgages. This is because a reduced base rate will likely then make interest rates on standard variable rate and tracker mortgages lower. This is down to the fact that the base rate is the interest charged by the BoE to borrow money, which is then reflected in the interest rates people in the UK pay.
The total amount that can be saved for a tracker mortgage will be dependent on if your mortgage is interest-only or not.
Unlikely to apply for fixed-rate mortgages
Unfortunately, if you have a fixed-rate mortgage (approximately 92.4% of all approved mortgages were fixed-rate in the final quarter of 2019) then the rate cut will not be passed on. This is because this mortgage term applies for between two and five years.
The only way you could potentially benefit is if you decided to remortgage your property. Think carefully if it is worth doing so, taking into account things such as cancellation fees.
Good news for buy-to-let mortgages
The base rate cut is good news for landlords, as almost all of the buy-to-let mortgages are provided on an interest-only basis. That means if interest-rates are reduced, it can only be advantageous for those with buy-to-lets.
Those looking to get a mortgage will benefit
If you are currently in the process of looking to buy a property and require a mortgage, now is the time to take advantage of mortgages being at historically low levels.
For example, the current base rate means this is a great opportunity to benefit from a low fixed-rate deal. A fixed-rate deal will mean that you can lock in a deal and if the base rate increases later on, you will not be impacted for the duration of the term.
Positive for property investors
Reduced interest rates are also better for property investors, as it helps to reduce the cost of borrowing for property development finance. It also increases the opportunity to boost profits in the longer term, thanks to the lower rate of interest.