19th March 2020
We hope that you are all well.
At Fox Davidson we thought it prudent to provide some answers to frequently asked questions. We hope this will give you more clarity about what the BBR reduction will mean for you and other COVID-19 related concerns.
As you will be aware the Monetary Policy Committee (MPC) has cut the Bank of England Base Rate (BBR) again today (19th March 2020) to 0.10%. This follows the cut last Wednesday (11th March 2020) from 0.75% to 0.25%.
The UK base rate is now at its lowest level in history.
We have also seen the Federal Reserve make two rounds of rate reductions with the most recent cutting rates to zero. Other countries, including Australia, New Zealand and Denmark, have also cut their central bank rates. To date, the European Central Bank has not followed suit, although other initiatives are being launched to help stabilise the economy.
Will mortgage rates come down?
We do not expect the recent base rate drop to filter through to fixed rates anytime soon. Mortgage lender’s pricing is based on the money markets and the markets had already priced in any expected reduction in interest rates before it happened. All bank base rate and LIBOR tracker rates will of course fall in line with any reductions.
I have a mortgage application underway, what should I do?
As mentioned above, it is unlikely that mortgage rates for new applications will come down by 0.5%, or indeed, at all. If you have an application in with a lender then we will keep an eye on rates and if we can secure a better rate for you, we will let you know.
Will my mortgage application be delayed?
Fox Davidson have robust business continuity plans to cover events such as this and those plans are already in place. With regards to lenders we have seen some service centres close due to Covid-19 incidents, but those lenders have continued to service applications as they have their own risk management policies in place to allow their businesses to continue to function as normal. Where we have seen a slow down is with surveyors. We have had a few instances where the vendor did not wish to allow the banks surveyor into the property due to self-isolation. We see this as an area that may cause some delays. Ultimately banks, surveyors, solicitors and property agents all wish to continue work as usual and from our conversations with other property professionals it is very much business as usual albeit with some changes to how we work.
I have a Base Rate Tracker mortgage – what will happen to this?
If your mortgage is directly tracking the Bank of England Base Rate, then unless you have a collar (or floor) built into your mortgage contract, you should see your rate reduce by 0.5% with immediate effect.
My mortgage is on the lender’s Standard Variable Rate (SVR) – will I benefit from the reduction?
A lender’s standard variable rate is set independently by the lender. Unless the rate you are on specifically tracks BBR or LIBOR you may or may not see a change to your rate, it will be lender specific.
Will Bank of England base rate be reduced further?
Whilst we don’t know the definite answer to this it is being signalled rates could drop further to 0.1%. We think the impact of the current rate drop needs to be seen to have worked before any further cuts are made, if at all.
What options do I have for reducing my mortgage payments?
We have listed some of the options that you may consider. More may be available.
Remortgage:When you remortgage you can increase borrowing, reduce borrowing and change your rate of interest. If you have early repayment charges on your existing mortgage this may not however be cost effective. Please contact us if you would like to discuss this.
Interest Only:For some borrowers with enough equity and a plausible method of repaying the capital it may be possible to switch to an interest only mortgage when you remortgage. However, switching to interest only needs careful consideration and is only applicable to clients with income typically above £50,000 and equity above £250,000 in their homes.
Mortgage repayment holidays:Following the chancellor’s announcement all mortgage lenders will be offering mortgage holidays for those affected by the coronavirus. Please speak to your mortgage lender as each lender will have their own rules for applying for the mortgage breaks. The mortgage holiday should not affect your credit rating but you will need to make up the payments so you do not lengthen the overall term of your mortgage.
What if my tenants can’t pay their rent?
We are hoping that the government announces measures to fund private renters to take payment holidays. The logistics of this are much harder to control and so we are not holding our breath. We would advise all of our landlords to contact their tenants and discuss their situation and try to be flexible where possible. Having adequate landlords insurance with a rent guarantee may be a sensible option.
What is happening at Fox Davidson?
We remain open for business as usual. Our staff are now all working from home and our phone lines are being managed in the normal way. We remain busy at present and are a flexible innovative company who can respond very quickly to market changes.
We have been speaking with our clients including home owners, landlords and developers. Many of you are continuing to invest in property and we will continue to support you with your funding requirements. The banks are all open for business and keen to lend and it is very much business as normal here at Fox Davidson.
If you have any further questions do not hesitate to call the team or email us at email@example.com