Pre-Brexit,
those who were opposed to leaving the European Union went to pains to point out
the potentially detrimental impact that going it alone would have on mortgages.
We were warned that lending would be jeopardised, and that the housing market
would face a full-blown crisis.
And
yet, three months later, there is little to no evidence of these prophesises
coming true. Now, experts believe that this is largely attributable to mortgage
lenders, with around half of providers not passing on the Bank of England’s
latest interest rate reduction, which has seen the base rate cut to just0.25 per cent.
Flying
in the Face of Convention
This
decision by mortgage lenders may be putting the UK property market at risk of a
slow-down, and it is not necessarily good news for borrowers either, who would
be financially better off if this lower rate were passed on to them.
The
move by providers has left many surprised, with Bank of England governor Mark
Carney openly stating that they had been expected to do so. As a result, the
initial reaction to the rate cut has been less positive than many hoped it
would be.
The
decision takes the Bank of England interest rate to a seven-and-a-half-year
low, and was introduced in the expectation that lenders would cut variable rate
products to the 0.25 per cent base rate. This should have left borrowers in a
stronger financial position, helping to combat any negative fallout from
Brexit.
As
expert Charlotte Nelson explains: "Borrowers would have
assumed that a 0.25 per cent cut in base rate would make them financially
better off, particularly if they were on a variable rate. However, this is
unfortunately not the case, with just under half of providers failing to pass
this cut on to their Standard Variable Rate (SVR) customers."
Fixed Rate Versus Variable Rate Mortgages
This has led many to question whether fixed rate
mortgages now offer a more enticing alternative, and Nelson explains that this
may well be the case: “Given that fixed rates are at all-time lows, borrowers sitting
on their SVR could still be better off opting for a fixed rate.”
Tracker mortgages offer another alternative, with most
falling in line with the base rate. Indeed, if we look at the figures, we can
see that the average two-year option has decreased by around 0.19 per cent,
whilst lifetime tracker rates have fallen by around 0.24 per cent.
Unfortunately, even these statistics provide a
slightly erroneous picture, with many providers having taken a proactive
approach prior to the base cut announcement by increasing their variable rate
products, and thus minimising the effects of the reduction.
The implications of this are important for anyone
looking to borrow, whether in the form of a mortgage, a loan with a guarantor, a secured option, or so on,
as they mean that it might be better to be patient and wait to see where this
course leads.
Nelson adds: "Given the bumpy road
ahead for the economy, some providers are still quite cautious in their
reaction to this new turn of events, with many choosing to wait and see to
ensure they get the timing right."
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