HomeBuyers: What does the Interest Rate change mean for you?
Good news for prospective home owners, as hoped, the Bank of England has reduced interest rates, in the wake of the vote to leave the European Union.
After almost endless speculation, the Bank of England has announced a cut in interest rates to 0.25%. So, how will this affect homebuyers?
The decision was taken by the members of the Monetary Policy Committee, who meet regularly to decide on the appropriate level for their main interest rate. This is otherwise known as the base rate or Bank rate.
The decision to cut interest rates by 0.25% this week is good news and even more so the key message for UK investors is that rates look set to remain low, for even longer than we thought.
Here is a snapshot of the change the interest rate cut will make:
What does this mean for homebuyers?
On 21st June, the day of the Brexit announcement, the first ever fixed-rate mortgage charging less than 1% went on offer, as lenders readied themselves for the fallout from the vote to leave the EU. With interest rates at an all-time low, now would be the time for first time buyers to see what mortgage deal they could get for their first home.
As reported by the BBC, “Using Office for National Statistics (ONS) house price data, a cut to 0.25% means a £22 monthly reduction in the bill for a variable 25-year repayment mortgage on a typically priced home of £211,000 having taken a 20% deposit into account.
So that is a £22 cut on a monthly mortgage bill of about £779.”
Low interest rates make borrowing cheaper, so for people with debt it makes monthly repayments smaller. Mark Carney also said that “Our actions [on July 5th] alone have released up to £150 billion in new lending capacity to UK businesses and households”.
This rate reduction will trigger immediate cuts to “tracker” mortgage rates, which are deals where the borrower’s rate is contracted to move in parallel with base rate.