What Interest Rate Cuts Mean for you
I’ve got a tracker/ discount mortgage
If you’re one of the lucky people to have a tracker mortgage, you should see your monthly repayments drop substantially next month. For example, if you have a £200,000 loan with 20 years left to run, your payments should fall by as much as £180 – depending on how much more you were paying above the Bank of England interest rate.
Those with discount mortgages should benefit as well. Discount deals are pegged to a bank’s standard variable rate (SVR), and many of the major lenders have begun to cut their Standard Variable Rates over the last two days. Others are likely to follow early next week.
However, David Hollingworth of London & Country mortgages, the fee-free broker, says that while it may be tempting to pocket any saving you make if you have a tracker or discount deal, it makes sense to consider using some or all of this money to pay down your loan quicker.
As house prices continue to fall, the amount of equity in people’s properties is diminishing. According to the Nationwide Building Society, house prices have fallen by almost 15 per cent over the past year, which means that if you bought your home for £200,000 last autumn, it may now only be worth around £170,000 now.
So, if you had a deposit of 25 per cent of your purchase price £50,000, you would have started off with 25 per cent equity in your home but will now have less than 15 per cent. You may find that once you come to the end of your current mortgage deal and have to remortgage, this becomes a problem, as few lenders at the moment are willing to lend more than 85 per cent of a property’s value.
Where possible, make overpayments on your mortgage to ensure you stay in the black, Hollingworth says that families are more likely to be able to get a mortgage next time around.