The startling cut of 1.5% in the Bank of England base rate this month, prompted some major changes in the mortgage market, which for most borrowers resulted in good news.
Most lenders who have made an announcement following the base rate cut gave a welcome boost to borrowers by passing on the full 1.5% to their Standard Variable Rate (SVR). This is great news for those borrowers on a discounted deal or for any still on the SVR.
Those borrowers on base rate tracker deals will see their rate automatically drop by 1.5%, which should show from their December payment.
The cost of funding trackers is linked to Libor (the rate at which banks lend to each other), while the rate the borrower pays is linked to bank base rate. With the gap between the two measures widening considerably over the past 12 months, the last drop in base rate triggered the withdrawal of virtually all trackers from the market. Fortunately some of the biggest lenders responded quickly and launched new tracker deals very similar to those they had earlier withdrawn.
Borrowers needing the security of a fixed rate should also benefit from recent changes, as since the change in base rate, a number of lenders have announced new cheaper fixed rates, with deals over 2, 3 and 5 years now available at under 5%.
The major hurdle for Remortgage customers in securing the best deal is the lenders valuation of their home. With both Nationwide and Halifax house price surveys both showing further falls in prices during October, and lenders restricting their best deals to those with up to 40% equity, borrowers who delay their application while waiting for rates to fall, risk facing a higher rate. If house prices continue to fall, even a 1-month delay could increase the mortgage rate by over 1%.
With most lenders having offers valid for 3-6 months, and the prospects for house prices gloomy, it will pay to book your mortgage deal early.