Generally, a bank rate cut is good for borrowers – particularly those with a mortgage – but bad news for savers.
While the Monetary Policy Committee (MPC) intended the rate reduction to be passed on to borrowers, some mortgage deals are priced from the swap curve, which means lenders would have already factored a potential reduction into their pricing.
With most homeowners assuming they will benefit from this rate cut, either through an immediate cut to their variable rate mortgage or through more competitive remortgaging deals, brokers will need to make it their priority to revisit their mortgage books to ensure customers receive the right guidance.
Equally, brokers need to ensure that they are keeping regular contact with their mortgage networks to ensure they are aware of any changes on the lending market and given the support to advise clients accurately during these uncertain times.
What does this mean for mortgage products?
With the recent change in interest rates, it is likely that lenders will be adjusting their product rates in order to factor in the 0.25 per cent rate reduction. Lenders are not obliged to pass the rate reduction on to consumers, but the Bank of England will expect them to do so wherever possible.
Two mortgage products that are slightly more complicated than fixed mortgage rates are standard variable rates and tracker mortgages.
Standard variable rates (SVR) do not follow the Base Rate, presenting strong opportunities for brokers to help borrowers across the UK to reconsider their current mortgage deal, and potentially save them money on a monthly basis.
For those borrowers on a tracker mortgage they may have a collar on it, a minimum rate can be charged but brokers will need to review the terms and conditions carefully to assess if the collar is already at the agreed lowest point.
This shift in the market is also a good time for brokers to talk to their clients about their protection needs. According to research from the Money Advice Service, almost one third of UK adults have experienced a serious financial shock in the past five years such as losing their job or being unable to work due to injury – but only a third had the right insurance in place to cushion the financial blow. As such, now is a good time for advisers to help their clients take stock of the cover they have in place, and perhaps encourage them to put some of these monthly savings towards much needed financial protection.
