For those with variable-rate mortgages, which include both tracker mortgages and standard variable rate (SVR) mortgages, a decrease in the base rate usually results in lower monthly mortgage payments. This is because the interest rate on these mortgages is directly linked to the Bank of England base rate.
These are tied directly to the base rate plus a fixed percentage. If the base rate goes down, the interest rate on the mortgage decreases by the same amount.
These are set by individual lenders and can change at their discretion. Although not directly linked to the base rate, lenders often adjust their SVR in response to changes in the base rate.
For those with fixed-rate mortgages, a reduction in the base rate does not affect the existing mortgage rate until the fixed period ends. However, borrowers may benefit from lower interest rates when they come to remortgage or take out a new fixed-rate mortgage after their current deal expires.
For those who have been holding on for the mortgage rates to reduce, this base rate change signifies that the time is now. A lower base rate can result in lower interest rates on new mortgage products, making borrowing more affordable. Use our FREE mortgage tool to check out what your personal mortgage rates would be in real time.
Lower mortgage interest rates generally mean lower monthly repayments, making mortgages more affordable for borrowers. This can also make it easier for new borrowers to pass affordability checks required by lenders.
While a base rate cut can offer immediate relief in terms of lower repayments, you should consider long-term financial planning and how future rate changes might impact your mortgage. If the base rate were to increase again, could you still afford the repayments?
Choosing between a fixed-rate and a variable-rate mortgage involves weighing the certainty of fixed repayments against the potential benefits of falling variable rates. Speaking to a mortgage advisor about the differences in rates and what they’d recommend in your circumstances can be beneficial. Strata offer access to our panel of independent mortgage advisors when you reserve a Strata home, free of charge.
