Base rate cut leads to cheaper variable-rate mortgagesTracker mortgage holders also benefitting
12 August 2016
Following last week's base rate cut from 0.5% to 0.25%, most banks are planning to lower their standard variable mortgage rates.
Eight out of the UK's 10 biggest mortgage lenders are to lower their standard variable rates or 'reversion rates' for all their customers from September.
A standard variable rate (SVR) is the interest rate mortgage holders pay after their initial deal period has finished.
Halifax is the only major lender that hasn't announced a cut for SVR customers, though Lloyds is only dropping its SVR for those who have held mortgages with it since before June 2010.
- If you'd like to better understand your mortgage options or get expert advice on the best deal for your personal circumstances, call Which? Mortgage Advisers on 0808 252 7987
What are the new SVRs?
Before last week the Bank of England base rate had been the same for over seven years, staying at 0.5% since March 2009. But on Thursday 4 August it was reduced to 0.25% in an attempt to encourage banks to make borrowing cheaper and therefore stimulate more consumer spending.
Most mortgage lenders have since announced plans to reduce their standard variable rates. Lloyds and TSB customers who took out their mortgages before June 2010 and Nationwide customers who took out their mortgages before April 2009 will be paying the lowest rates, at just 2.25%.
At 4.54%, Virgin Money's updated SVR will be the most expensive out of the 10 biggest lenders. Customers on its 'loyalty rate' (those who have held the same mortgage for seven years) will pay 4.29%.
The table below contains full details of what the 10 biggest mortgage lenders have said they will do.
|Mortgage lenders' standard variable rates and reversion rates|
|Bank/building society||Current SVR/reversion rate||New rate||When it will change|
|Coventry Building Society||4.74%||4.49%||September|
|Lloyds||3.99% (mortgages taken out on or after 1 June 2010) or 2.50% (mortgages taken out before 1 June 2010)||3.99% or 2.25%||3.99% under 'ongoing review'; September for 2.25%|
|Nationwide||3.99% (mortgages taken out on or after 30 April 2009) or 2.50% (mortgages taken out before 30 April 2009)||3.74% or 2.25%||September|
|TSB||3.99% (mortgages taken out on or after 1 June 2010) or 2.50% (mortgages taken out before 1 June 2010)||3.74% or 2.25%||September|
|Virgin Money||4.79% (4.54% 'loyalty rate' for customers who have had the same mortgage for at least seven years)||4.54% or 4.29%||September|
Tracker mortgage rates
If your mortgage is directly linked to the base rate, for example a tracker mortgage, your rate is likely to have dropped automatically. The exception is some mortgages with a 'collar', where the interest rate will never drop below a certain level.
For example, if you have a mortgage that tracks at 2% above the base rate (ie, until last week, 2% + the base rate of 0.5%) and it has a 2.5% 'collar', your mortgage won't get any cheaper with the new 0.25% base rate because you're already paying the lowest possible rate under the terms of your deal.
Check your mortgage's terms and conditions to see if this applies to you.
- Find out more about tracker mortgages
Remortgaging could still save you money
Even if your interest rate will drop following the base rate fall, it's still worth checking to see if you could get a better deal by switching mortgage. Some recent deals have launched with record-breakingly low interest rates.
For example, HSBC is currently offering a two-year fixed-rate deal at 0.99% for people borrowing 65% or less of their property's value, or a 1.99% five-year fixed rate for people borrowing 60% or less of their property's value.
Barclays is currently offering a two-year tracker mortgage at 1.24% for people borrowing 60% or less of their property's value, while Coventry Building Society is offering a five-year tracker mortgage at 2.10%.
Although the best mortgage rates are typically only available to people with large deposits, eg 35% or 40%, if you have a smaller deposit you may still be able to find a cheaper deal. Our guide on the pros and cons of fixed-rate mortgages contains a table listing the best deals for those with 15% deposits.
- You'll need to factor in early repayment charges and setup fees when deciding whether to remortgage. For impartial, expert advice call Which? Mortgage Advisers on 0808 252 7987.
- Standard variable rate mortgages - learn more about the pros and cons
- Types of mortgage - work out the best option for you
- Property quiz - are you a home-buying mastermind?
Your home may be repossessed if you do not keep up repayments on your mortgage.
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