Amongst all the uncertainty surrounding the impact of COVID-19, we have put together our most frequently asked questions from clients on the cut to interest rate and other coronavirus related queries.
We want to offer the following advice based on the questions you’re asking us most frequently following a number of Government announcements, which we hope will give you more certainty about property finance during this uncertain time.
Last Updated: 26/03/2020
Bank of England Interest Rate Cuts
So far, the Monetary Policy Committee (MPC) has made two significant cuts to the Bank of England Base Rate (BBR). The first occurred on 11th March, where it was cut to 0.25%, only to be reduced further on Thursday 19th March to an unprecedented 0.1%, an all-time low. 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 they are launching other initiatives to help stabilise the economy.
Will mortgage rates come down?
Lenders mortgage rates and pricing are not necessarily linked directly to Base Rate. Many lenders will base their pricing on money market rates and, as such, a drop in Base Rate does not automatically constitute a drop in mortgage rates.
Market rates are very sensitive, and a predicted drop in Base Rate will have, in part, already been factored into current pricing of fixed-rate products.
In our experience of Base Rate reductions, any reductions to mortgage pricing happen neither quickly nor in direct proportion and often, there is no change to pricing at all. The exception to this are products which directly link to the Base Rate, e.g. a Bank of England Base Rate Tracker.
When BBR reduced to 0.25% on 11th March, we saw many lenders reprice their mortgage offerings. However, when Base Rate further reduced to 0.1% on the 19th, many lenders withdrew tracker and higher LTV rates, reduced their borrower criteria and actually increased prices.
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 0.74%, or indeed, at all. If you decide to move products, the good news is that mortgage lenders will generally let you move to a new product within their range before your mortgage offer is produced, without a charge. Lenders usually will also allow you to take a new product from their range post issuing the mortgage offer, for a small fee. As part of our service to our clients, we actively monitor pricing options to ensure that you have the best rate available for your circumstances before you complete, and thus can no longer move product.
Will my mortgage application be delayed because of the Coronavirus pandemic?
While Mortgages for Business and mortgage lenders have robust business continuity plans to cover such events, the Government’s three-week lockdown restrictions have meant that application processes will see significant delays going forward.
Currently, under the Government’s advice, valuers and surveyors are unable to physically inspect properties, meaning an increasing pressure on lender processing. Once restrictions lift, appointments will be issued based on who put applications in first, so we would recommend getting your applications in as soon as possible to avoid further delays later on. For more information on this, please click here.
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 0.74% with immediate effect.
My mortgage is on the lenders Standard Variable Rate (SVR) – will I benefit from the reduction?
It will depend on whether the SVR is tracking Bank Base Rate or a different rate, for example, LIBOR. If your SVR is tracking BBR, then as long as there is no floor built into your mortgage contract, you should see a reduction of 0.74% in your interest rate. If your lender is tracking a different interest rate or is simply the lenders own internal rate which they set independently, then the lender has discretion about whether they chose to reduce this rate and if so, by how much. Any decisions of this sort usually take a couple of weeks, and your lender will write to you to advise you of any interest rate change.
Will Base Rate to be reduced further?
Unfortunately, we do not know the answer to this. After two previous cuts, it is less likely that it will be reduced to 0% to match the Federal Reserve. However, there is still a lot of unknown surrounding COVID-19, and a further interest rate cut cannot be ruled out.
I can’t pay my mortgage because of Coronavirus, what do I do?
The Government announced on 17th March that lenders would be offering a three-month mortgage payment holiday to those who are struggling to make repayments due to the ongoing COVID-19 situation. This allowance includes buy to let landlords.
If you need to contact your lender about a mortgage payment holiday, we’ve collated a list of their contact details in this guide, which we will be updating continuously.
What if my tenants can’t pay their rent?
In addition to homeowners struggling to pay mortgages, the impact of COVID-19 will affect renters alike. As a landlord, it is prudent to be aware of this and ensure that you are having conversations with your tenants.
John Stewart of the Residential Landlords Association has issued guidance to landlords, asking them to be as flexible as possible with their tenants. He said: “Landlords should be sympathetic and be as flexible as possible with payment arrangements, including working with the tenant to repay any arrears when things return to normal.”
“Where rent arrears create problems for landlords with their mortgage repayments we would hope that lenders give landlords the same flexibility with payment holidays that they are offering to homeowners.”
What finance is available for businesses?
For details about what the Government’s Coronavirus Business Interruption Loan Scheme is offering and how we can help you access other forms of business finance, read our article here.
The RLA has published guidance for landlords: https://news.rla.org.uk/coronavirus-what-should-i-do/
Find the latest information from the Government on the COVID-19 situation: https://www.gov.uk/government/publications/covid-19-stay-at-home-guidance#main-messages
Government information on the tenant eviction ban: https://www.gov.uk/government/news/complete-ban-on-evictions-and-additional-protection-for-renters
Financial Conduct Authority (FCA) guidance on Coronavirus: https://www.fca.org.uk/consumers/mortgages-coronavirus-consumers