Will Residential Mortgagors Benefit If The Base Rate Falls?
Some economists are forecasting that the Bank of England may reduce the Base Rate from 0.5% to 0.25% when its Monetary Policy Committee meets this week in view of the implications of the recent Brexit vote. When this happens it usually has an impact on the likes of residential mortgages and many other forms of borrowing.
So, if a fall in the Base Rate is seen, how could this affect interest rates on residential mortgages?
Well, for those people on a variable rate of interest, if their mortgage lender does reduce that type of rate then they will no doubt see a reduction in their monthly repayments. Some borrowers will gladly accept the offer to reduce how much they are paying each month but some may possibly prefer to leave their monthly repayments at the level they may have been paying for a few years that would mean that, if interest rates thereafter remain unchanged, they should repay their mortgage over a shorter period of time.
There will be some borrowers who are on tracker mortgages linked to the Base Rate so those people may well see a reduction in their monthly repayments.
However, there are a lot of people with residential mortgages who are on fixed rates of interest. Those people will not see a change in their monthly mortgage repayments until they come to the end of their fixed rate term when they should be free to take advantage of another mortgage package that may offer a lower interest rate than the one they are currently paying assuming that interest rates have not started to creep back up again.
For the time being, we will just have to wait and see what the Bank of England decides to do with the Base Rate. Once their decision is known then people will have to wait to see how residential mortgage lenders react and then some mortgagors should have a clearer idea as to what their options may be.