Bank of England Base Rate Cut Spurs Competitive Mortgage Rates: What Borrowers Need to Know

Fixed rate mortgages are priced based on the “swap rates” (not the Bank of England Base Rate), which is when two parties swap interest rate payments for another. In the case of mortgages, it is what lenders pay to financial institutions to acquire fixed funding for a set period of time. They can be on a number of terms, including one, two, three, five and ten-year terms and the cost is used to price fixed rate mortgage products. Swap Rates are based on what the markets think interest rates will be; if the Swap Rates rise then mortgage lenders will increase their pricing to maintain their profit margin. Now that the Swap Rates have recently been reducing, this has reflected in the fixed rates reducing. When the Bank of England Base Rate falls, a tracker mortgage without early repayment charges can put borrowers in a position to take advantage and give a lot of flexibility; however, it can also leave people vulnerable to any unexpected future base rate hikes. On the flip side, choosing what length to fix for depends on what you think will happen to interest rates during that time and what your personal circumstances are. They will almost inevitably carry early repayment charges meaning you’ll be limited as to how much you can overpay or potentially pay thousands of pounds in exit fees if you opt to leave before your initial fixed rate deal expires. Whatever the right type of mortgage for your circumstances, shopping around and speaking to a good mortgage broker is a wise move.

Credit: Chris at My Mortgage Brokers