Even if you don’t own property or have any money in savings, you can’t have escaped the chat surrounding the Bank of England base rate over the past couple of years.
Not that a lot has happened during that time though, as this month saw the Bank of England hold the base rate at 0.5 per cent for the 32nd consecutive month.
The Bank of England makes changes to the base rate in order to keep inflation in check. The base rate is constantly reviewed in order to keep inflation down and it is the rate which the BoE charges on its own lending. As a result, when the base rate moves up or down, interest rates on borrowing in general will move accordingly.
While low base rates might have a positive effect on borrowers, resulting in lower repayments, it can have an adverse effect on savers. Savers will typically see lower returns on their investments as savings providers can only offer savings products with interest rates reflecting the low base rate.
But what does the apparently immoveable, low base rate mean for mortgages? Low base rates would suggest lower monthly repayments, which is great for homeowners during the current economic climate – but is there a risk that as homeowners become accustomed to lower monthly repayments, they will feel the pinch when rates do eventually go up?
Homeowners with tracker mortgages are likely to have seen the biggest benefit from the low base rate, as repayments are set at a certain percentage above the base rate.
The low rate could also (potentially) be great for first time buyers who might be able to capitalise on more competitive deals, but the catch 22 is that those aspiring to own their own home might find saving for a deposit more difficult as current savings rates aren’t returning as much interest as rates of years gone by.
The low base rate doesn’t guarantee good deals on mortgages though, as the current uncertainty in the Euro Zone could have a negative on market confidence, causing the more competitive deals to disappear.
If you’re looking to switch your mortgage to take advantage of the low rate or you’re looking to get on the property ladder, you may wish to use a mortgage calculator to work out what your repayments could look like. Search online for mortgage calculators, or see the one at Moneysupermarket.