Interest rate cut: Could you be getting a better deal?

The speculation about interest rate cuts came to fruition as The Bank of England reduced the base rate from 0.5% to 0.25% – the lowest rate since 2009, as a stimulus for the economy.

The Bank of England also announced a £100bn scheme to ensure than banks pass on the savings of low-interest rates to households and businesses. We explore some of the best mortgage deals available to first-time buyers and those who might be interested in the sort of savings available for re-mortgaging. The most cost-effective re-mortgage deals will see customers move from standard variable rates on to cheaper 2 and 3-year fixed deals.

Note: Figures below accurate on 15 August 2016.

Let’s first take a look at the type of deal a first-time buyer can get.

Scenario 1 – First-time buyer

  • House purchase at 90% borrowing on a £125,000 property
  • 90% loan of £112,500, 10% deposit of £12,500, over a 30-year term
  • Fixed for 2 years at 2.24%
  • Monthly payment of £430

For a bigger house purchase, scenario 2 works through some monthly figures based on a slightly better Loan to Value rate.

Scenario 2 – More borrowing

  • House purchase at 85% borrowing on a £175,000 property
  • 85% loan of £148,740, 15% deposit of £26,250, over a 30-year term
  • Fixed for 2 years at 1.54%
  • Monthly payment of £516

Both of these scenarios are far more cost effective than the cost of renting. And what if you are part way through the term of your mortgage and you’re looking for a better deal? Perhaps with a slightly bigger outstanding sum.

Scenario 3 – Re-mortgaging

  • Re-mortgage of £200,000 on a house value of £300,000 over 20 years
  • Current interest rate of 3.99% (lenders standard variable rate) equates to a monthly payment of £1,210
  • Compared to re-mortgaging at 1.44% (2 year fixed rate), with
  • Monthly payment of £960.
  • Monthly saving of £250, Annual saving of £3,000

As scenario 3 shows, there are some incredible deals to be had, taking advantage of historic low interest rates. There are estimated to be more than 1 million people on standard variable rates. If that’s you, then perhaps we can help to reduce your costs. Contact the team on 01604 877999.

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