With research revealing that only a minority of borrowers know how cuts to the Bank of England base rate impacts on them, Tepilo outlines why it pays to be clued up about all things mortgage-related.
Why it pays to keep an eye on the Bank of England
Interest rates and mortgages can be a complicated old business at times, so it’s not surprising that only one in four mortgage borrowers is aware of how changes to the Bank of England’s (BoE) base rate could affect their mortgage repayments.
These are the findings from online mortgage broker Trussle, highlighting that only 27% of mortgage-paying homeowners fully understand how the actions of the BoE can impact on them.
Back in August this year, the BoE finally cut its base rate – from 0.5% to 0.25% - for the first time in seven years. The base rate, already at historic lows to protect the economy in wake of the global financial crisis, was reduced even further to safeguard house prices and the wider economy post-Brexit.
This fall in the base rate saw mortgage rates fall as a consequence. Tracker rates, which ‘track’ the BoE’s base rate, fell to 0.25%, while fixed rates also dropped to record lows. Two-year fixed rate deals were available for as little as 1.39% in the aftermath of the change.
By contrast, the Standard Variable Rates (SVRs) offered by lenders – the default rates that most borrowers find themselves on – didn’t fall anywhere near as much. Before August, the average SVR was 4.8%. By November this had only dropped by 0.17% to 4.63%.
As such, there has been a growing gap between the best and worst rates on the market. This means that people stuck on expensive SVRs could potentially save a further £380 a year by switching to a more favourable fixed rate deal. Since August’s base rate reduction, the average annual saving from being on a fixed rate rather than an SVR has increased from £3,120 to £3,500.
Despite this, just over one in 20 borrowers have considered actually switching mortgages. The research found that only 36% of borrowers are happy with their current mortgage deal, but at the same time only 6% have sought to switch to a better rate since the BoE’s move in August.
Trussle’s study, conducted by YouGov, also found a gender disparity when it comes to mortgage knowledge. Although 27% of all mortgage borrowers understood how a cut to the base rate would affect their repayments, there was a big discrepancy between male and female borrowers. Some 35% of men said they understood the implications, in comparison to just 19% of women.
What’s more, men are more likely to keep track of their mortgage payments than women, according to the research. While 33% of men said they kept abreast of what they owed, only 23% of women did the same.
We all know the mortgage world can be a complex, jargon-heavy place, which is why we attempted to wade through the mortgage quagmire in this blog.
It is wise for borrowers to re-evaluate and reassess their situation on a regular basis, because you could be missing out on a better deal. As usual, you should seek the advice of experts before taking any decisive action. But it pays to be clued up and on the ball, especially at a time of record low rates.