Base Rate Cut Again to Effectively 0%
Written on 19 March 2020 by
The Bank of England base rate is now 0.1% - the lowest rate ever recorded.
This was unexpected and has caught many of us by surprise. When the chancellor said the government would do whatever it takes, we thought that would be through taxation cuts and government spending rather than the base rate being cut again – and to this level - so soon. This base rate means that the Bank of England - as the “lender of last resort” - is effectively going to loan money at almost 0%. It also means that they really feel it’s currently necessary to do so.
Will mortgage rates fall now? Yes, we actually think that they will this time. If the Bank of England is effectively giving money away, there will be lenders that keen to take advantage of the situation and try to maintain their market share, as well as some kind of lending volume. All it takes is one lender to take some of this cheap funding and to drop their rates and others will almost certainly follow suit. Another reason I think that lenders will take this funding is that if the money markets are not willing/able to go any lower, but the Bank of England is, then lenders - and maybe the market participants themselves - will go to the Bank of England directly to obtain the cheap money.
So, the advice for borrowers is to still make your application but watch what happens. Lenders have a variety of processes to enable product switches made during the application process. Check with your broker for lender product updates regularly and - if a cheaper deal comes out - see if you can easily switch onto the new product. Simply be aware that lenders will have reduced staffing levels and possibly higher demand for this kind of action - so taking a slightly cheaper product close to completion might not be a good idea and some lender systems are far better prepared to handle product switches than others. The base rate has dropped by 0.15% and we expect rates to drop further by up to 0.1%.
This will affect ever popular fixed rates very much. Existing borrowers on tracker rates will be keen to see if they have a minimum rate below which they cannot go – i.e. a collar rate - but new tracker rates could be withdrawn and replaced with higher margins to maintain some semblance of profits.
Categories: General Mortgage Information, Nick Morrey
