Interest rate cut: What the new 0.25% rate means for homeowners and buyers

Homes up for sale - will the new rate change the market?
Homes up for sale - will the new rate change the market?
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What will a further cut in the Bank of England base rate to a new low of 0.25% mean for home-owners and those trying to get on the property ladder?

Will the mortgage deals on the market now get even cheaper?

Years of low interest rates mean that mortgage rates have already hit record lows, thanks to a series of mortgage price wars erupting between lenders.

And it is not just rates that lenders have been competing on as the battles have heated up. More than 1,200 mortgage deals currently on the market have no arrangement fee to pay - compared with just 394 deals five years ago, figures from Moneyfacts.co.uk show.

So will mortgage rates now get even lower? While there is the potential for rates edging down further, the extent to which this happens may depend on how much wriggle room lenders have to do this. It is also worth bearing in mind that the base rate is only one factor lenders take into account when deciding what rates to offer.

Andrew Montlake, director at Coreco Mortgage Brokers, said: "Competitive pressure remains strong and should ensure the current crop of low rates continue for the foreseeable future, with the potential of even lower offerings over the coming weeks".

Meanwhile, Charlotte Nelson, a finance expert at Moneyfacts, believes some lenders may wait to see how others react first before making a move.

Ms Nelson said: "We are unsure how the providers will react to a base rate cut, with many perhaps choosing to wait and see how the rest of the market reacts to the news."

Apart from the base rate, what else do lenders take into account when setting mortgage rates?

Factors include a lender's own costs of borrowing from sources such as savers and other banks - and the costs will differ between lenders.

Rates also depend on the overall way the mortgage deal is put together as a whole package and any fees that come with the mortgage are also taken into account when setting rates for the deal.

Lenders also factor in the risk of someone defaulting on their deal. While lower rates mean borrowers are less stretched when making their repayments - and are therefore perhaps less likely to default - the uncertain economy could mean added risks from someone missing their repayments.

Mr Montlake said it is "not a foregone conclusion" that someone will necessarily see the deal they want fall as some lenders have a "collar" or floor below which they will not reduce rates further.

Some lenders use their own version of the base rate which, although it always has historically, does not have to mirror the Bank of England, he said.

Mr Montlake added: "Similarly lenders may not rush to reduce their standard variable rates as many will be keen to protect their margins and ensure they remain profitable.

"As far as fixed rates are concerned, swap rates (which lenders use to price their loans) have fallen dramatically since the Brexit vote so (lenders) have to some extent already priced in a cut such as this."

What will happen to my existing mortgage payments?

That depends on what type of deal you are on. Some mortgages are directly linked to the base rate but others are not.

More than 1.5 million existing mortgages are bank rate trackers, according to industry estimates. In general, the rates on these deals track the movements of the base rate, plus a certain percentage margin specified by the lender.

A quarter percentage point cut in the base rate could shave around £26 a month off the mortgage repayments of someone with a £200,000 loan over a 25-year term, according to the Council of Mortgage Lenders (CML). But this would depend on the base rate cut being passed on in full to the borrower.

Many people nowadays are on fixed-rate deals, and so they will not see an immediate impact. Around nine in 10 new mortgages being taken out are fixed rates.

What impact could the base rate cut have on the housing market?

Mark Hayward, managing director of the National Association of Estate Agents (NAEA) said cutting interest rates further is likely to improve confidence among those prospective house-buyers who may have put their search on hold, following the Brexit vote in June.

But he warned that would-be home buyers could have a tougher time saving for a deposit, with returns on savings so low.

He said: "The outcome of the today's rate cut is simple - we will see aspiring home owners saving harder for longer, which will no doubt have an impact on the number of first-time buyers succeeding in their dream of acquiring their own home."