The era of ultra-low rates is here to stay
Peter Williams is executive director of the Intermediary Mortgage Lenders Association
Today’s decision to cut the Base Rate to 0.25% shows that the era of ultra-low rates is here to stay. While some think a rate cut could adversely affect sterling, the MPC feel there is a clear need to boost spending, borrowing and business investment – which they will also hope to achieve through a complimentary asset-purchase programme.
Lower for longer is good news for consumers, who will reap the benefits of strong mortgage affordability. Borrowers on tracker deals will see a reduction in their monthly payments, and remortgagers will be well-placed to tap into attractive deals.
While a cut to the Base Rate is unlikely to have an immediate effect on fixed mortgage rates – given that these are priced from the swap curve – it does mean they’re unlikely to increase for a considerable time.
Furthermore, borrowers and lenders will also be supported by the newly announced Term Funding Scheme, which seeks to pass the benefits of a lower Base Rate directly on to consumers.
It isn’t all plain sailing, with the Bank signalling that growth is likely to slow and inflation is likely to rise.
Alongside the Base Rate cut, this will add extra strain to aspiring buyers struggling to save for a deposit.
Borrowers also remain subject to the rigorous affordability checks introduced in the Mortgage Market Review, which will prevent lenders from advancing significantly more loans to first-time buyers.
So the winners of today’s Base Rate cut will be remortgagers and those on tracker rates, but those most in need – first-time buyers – will continue to find conditions challenging.