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Winners And Losers After Base Rate Cuts
After the recent cut, in the Bank of England's base rate, the divide between mortgage winners and losers is at its widest in living memory. Some very lucky borrowers now have interest on their mortgage which is next to nothing or nothing at all, these are obviously the winners. These fortunate families are hundreds and in some cases thousands of pounds better off each month.
However, there are the losers as well. These are the borrowers whose mortgages are still at interest rates of six, seven, or even eight per cent. They are tied in and are unable to switch to a cheaper deal.
Experts believe the 'mortgage apartheid', which is the divide between the mortgage haves and have not's will intensify and is a feature of the dysfunctional market.
During the height of the mortgage boom, these mortgage winners took advantage, of the extremely generous deals on offer. These were where the rates are linked to the Bank of England's base rate.
These rates have now plunged as the base rate has gone down to close to zero or even at zero. However, borrowers stuck with fixed rates or for those looking for a new mortgage deal, the choice is limited and it is hard to qualify for the best deals. As a result of the credit crunch the banks and building societies are short of funds to lend, and because of this they want to make the lending that they agree, to be as profitable as possible.
For example, at one Building Society, the SVR is 5.99 per cent, which is six times the base rate. Previously this Building Societies SVR was at 7.84 per cent, a reasonable third above the then base rate, which was 5.75 per cent. This particular Building Societies SVR has fallen just 24 per cent while the base rate has fallen 83 per cent.
Among the winners are Mr and Mrs A, who took out a 350,000 pounds Halifax mortgage on their home, a couple of years ago. Their mortgage rate, promised to track the base rate minus 0.51 percentage points for a few years. The base rate then was 5.75 per cent. Then rate they paid fell from 5.24 per cent to just 0.49 per cent!
They were paying 1,528 pounds per month for the interest part of their mortgage this has dropped to an amazing 143 pounds. They have been paying more off their repayment part of the mortgage, so repayments have not fallen quite as dramatically but they still have about 1,000 pounds a month more to spend.
Mr A, an account manager at a computer firm, says: 'All our mortgage has done is go down, it's been brilliant. When the base rate gets to half a per cent, in theory the Halifax should pay me, but somehow I think it won't.'
Borrowers with a poor credit history are in the worst situation of all. Lenders no longer wish to give mortgages to homeowners with no equity or negative equity in their properties and with patchy credit histories. Those with a poor credit rating are stuck with their lenders' SVRs, which can be as high as nine per cent.
Author Resource:-
Are you currently wanting a Mortgage, visit Brokers Online and read the information about the different types of Mortgages and Remortgages. Brokers Online is a great financial web site, providing its clients with articles about Debt Management, Debt Advice, IVA's, Debt Plans and Debt Help.
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