Interest Rate Cuts and Your Next Mortgage

In years gone by, when it came to buying property, buyers were traditionally advised to go for a fixed rate mortgage by their bank. But in 2016, with interest rates falling to a new record low – and warnings that they could fall further – could it be worthwhile seriously considering a tracker mortgage?

Mark Carney, the Governor of the Bank of England, announced earlier this month a cut to the interest rate from 0.50% to 0.25%. This cut is a record low for the UK interest rate, and is the first drop since 2009, according to the BBC.

And the bank has also reportedly announced other measures, including a £100bn scheme that will result in banks having to pass on the lower rate to businesses and households. So what could this mean for the typical Scottish buyer? Quite simply, the potential for lower mortgage rates. (source)

Tracker mortgage

If a tracker mortgage – which typically follows the base rate of the Bank of England – would have been deemed risky especially pre-recession, now it could be argued that it as an opportunity to seize upon a good deal. Bank of England has reportedly advised that if the economy failed to pick up, there was indeed scope to cut the rate even further.

[ctt template=”8″ link=”b1m8b” via=”no” ]Bank of England has reportedly advised that if the economy failed to pick up, there was indeed scope to cut the rate even further.[/ctt]

So what are the main advantages? For one, potentially cheaper mortgage deals. People who are on a tracker mortgage will have seen the interest on their repayments fall, as it follows the base rate of the Bank of England. And for those looking to take out a mortgage right now, this can mean getting a potentially even better deal than would be possible with a fixed rate mortgage.

Secondly, no early repayment charges. Tracker mortgages are far less likely to penalise you for early repayment, in comparison to fixed rate mortgages. And thirdly, if the base rate continues to stay low, which it has done so far since 2009, then tracker mortgages could remain lower than fixed rate for years to come, ultimately making them the more cost effective choice. (sources here and here)

Fixed rate mortgage

While there are some suggestions that a tracker mortgage could be the right choice, according to news sources, fixed-rate mortgages have also reduced significantly, and continue to remain the safer choice. This is because, as the name suggests, once the time frame and rate is agreed, your mortgage is secured at that rate.

But traditionally you pay more in the form of higher rates for this additional security. But with rates for fixed rate mortgages falling, it is argued that you can get a good deal on a fixed rate, without paying extra in terms of high interest for the additional security.

And so it’s argued that as the rate of fixed rate mortgages has also fallen, it remains the overall safer bet when compared to a tracker mortgage.

Looking ahead

For those who are in a position to and are thinking of investing in property to take advantage of the lower rates, there could be potential for growth and an upturn in the economy in the future. Earlier this month, Nicola Sturgeon announced £100 million of funding to support Scotland’s economy, and to support businesses and local infrastructure; this could be viewed as a confident signal in the future of Scotland’s economy.

[ctt template=”8″ link=”caL0p” via=”no” ]Nicola Sturgeon announced £100 million funding to support economy – a confident signal in Scotland’s future.[/ctt]