What the interest rate cuts mean if your buying a house
Help…we’re buying a new house
If you’re buying a property, and are looking for a new mortgage, you’ll find that there’s not much on offer at the moment. This week, almost every lender withdrew all of their new tracker mortgages, as they waited to see what the Bank of England would do with interest rates. Meanwhile, there are very few discount rates available either.
If you’re looking for the good deal, the best thing to do is to wait for a few days. Lenders are expected to begin offering tracker mortgage products next week, although it’s not clear how far they’ll be priced above the bank rate. Tracker rates are still the throught to be the best option if you can get them, as almost all economists are predicting that the next rate in interest rates will be down – maybe even as soon as next month. The most pessimistic economists are predicting that rates may go down to 0 per cent.
If you do opt for a tracker, however, watch out for whether your deal has a “collar” – a rate below which your mortgage cannot fall. Nationwide and Skipton Building Societies are amongst a handful of lenders who already have collars on all of their tracker mortgages. In the case of Skipton, its collar is 3 per cent, which means that now the base rate has hit 3 per cent, its customers will see no further reduction if the bank rate is reduced further.
David Black, the head of banking at consultants Defaqto, believes that once banks begin to reissue trackers next week, collars will become even more prevalent. “When the new ranges of trackers get launched, you can expect far more to have a collar,” says Black. “I expect you’re also going to see bigger margins [between the mortgage rate and bank rate] as well.”
At the moment, one of the only trackers on the market is being offered by HSBC, at 0.99 per cent above the Bank of England rate. However, you’ll need a deposit of 40 per cent to qualify. If your finances wont stretch that far, Earl Shilton Building Society has a product which charges bank rate plus 1.75 percentage points – and you only need a 20 per cent deposit to qualify.
If you can’t wait to get a new mortgage – or you prefer the stability of knowing what your monthly payments will be – there are still plenty of fixed-rate products on offer. In light of expeced rate cuts in the future, fixed rates look particularly poor in value.
Woolwich, for example, has a two-year fixed-rate deal at 4.99 per cent, which is almost 2 percentage points above the current bank rate. If you can, hang on for a few weeks and there should be some much more competitive fixed-rate products available on the market.