Historic interest rate cut

Bank of England cuts Base Rate to 3%

The Bank of England has made another emergency cut in interest rates, taking them to 3 per cent. With the UK recording a fall in economic growth of 1.5 per cent in the third quarter of this year, this emergency reduction is seen as essential to minimise the all-too-inevitable recession. Experts expects further rate reductions in coming months.


Tracking the Base Rate

With fewer than half of all mortgage lenders passing on the previous half-point base-rate reduction via their standard variable rates (SVRs), borrowers need to take care when re-mortgaging to another deal.

Lenders withdraw all Tracker products
Inevitably, all the major lenders have now withdrawn their Tracker products, those that had any left, and so there are no tracker products left on the shelf. They will now be pondering this situation and will announce a new range of Tracker products, probably early next week.

A discounted-variable rate may seem as good a bet as a base-rate tracker but discounted products are linked to the lender's SVR, which is set at its own discretion. As we saw last time rates were cut, there is no compulsion on the lender to pass on any of the reduction. A tracker is more transparent as the margin with base rate remains the same so your monthly mortgage payments fall accordingly.
Expect Fixed Rate products to fall shortly, but not having the full rate reduction applied. Lenders have to maintain the differentials to maintain their own liquidity margins.

The cost of delaying a decision (or Pinning Jelly to the Wall)

I've not written any Blog entries for many weeks now, as the market has been so fast moving that I've just not had time.

Just how fast is the market moving right now? As I write, I've just received an email from the Bank of Scotland, part of HBoS. It's now 5.43pm, and their email was timed at 5.41pm. It says "Selected Bank of Scotland tracker rates increased. Applications for removed products should be received by 5pm on Tuesday 28th October." That was 45 minutes ago !! Yesterday, I received a similar email from Cheltenham + Gloucester (C+G), at 4.15pm, to say their 90% products were becoming 85% products from 5pm !

This exact situation was brought home to me on the 10th October, 18 days ago, when a new client asked me to research a mortgage product for himself. He required a mortgage of £202,500, which was 90% of the property value. From a possible 16 products that fitted the criteria, the most suitable product at that time was a Tracker product at 5.93% with an arrangement fee of £599. He would have paid a total of £24,625 over the first 24 months, including the lender's arrangement fee. The best 2 year Fixed Rate product was 6.48%, with a £999 arrangement fee (total cost over 2 years being £27,243). Because of his procrastination, those products have now disappeared, along with all other Tracker products at 90% Loan to Value. Today, only 2 products appear on my sourcing system for his requirements. The most suitable product is now a 2 year Fixed rate at 7.69% with an arrangement fee of £995, making the total to pay over the first 2 years a total of £32,139, or an increase of over £7,514 for the sake of his procrastination over the last 18 days. It's an expensive lesson to have to swallow.

I'm often asked "When is the best time to buy property?". I have two stock answers.. (1) Now, and (2) Whose crystal ball shall I use, yours or mine? (although I hate to answer a question with a question!)

I just want to make it abundantly clear that the market is moving so fast, and sometimes in retrospect, it is becoming increasingly hard to find the right product and for the borrower to make a decision about the product that is presented to them, only for it to be withdrawn at ultra-short notice, if any.

It really is a hard lesson to learn, and it's still not getting any easier to pin jelly to the wall !