What can I do about my mortgage now that the base rate has been cut?

Fixed-rate vs. tracker mortgages

If you currently have a fixed-rate mortgage, this base rate cut won't immediately impact your monthly payments. Approximately 7 million of the UK's 8.4 million residential mortgages are on fixed rates, so the majority of homeowners won't see an immediate change. However, if you're on a base rate tracker mortgage or your monthly payments are linked to your lender's standard variable rate (SVR), you should see a reduction in your payments. For those whose mortgage deals are coming to an end soon, now is the time to evaluate your options.

Should you choose a fixed-rate or tracker mortgage?

Fixed-rate mortgages offer the certainty of set monthly payments, making them a safer choice for those with tighter finances, such as first-time buyers. Currently, fixed-rate deals are typically cheaper than trackers. But on the other hand, tracker mortgages move in line with the base rate. If further rate cuts happen this year, a tracker mortgage could allow you to benefit from lower payments in the future. However, it's essential to compare the current rates.

The average 2-year fixed-rate deal is now 5.74%, while the average 5-year fix is 5.38%. In comparison, the average 2-year tracker deal is 5.95%. That means if you had a £200,000 with a 30 year term, on average a 2-year tracker would cost you £1,193 each month, costing £324 more each year than the average 2-year fixed-rate and £864 more than an average 5-year fix.

Based on £200,000 mortgage with a 30-year term, repayments on a 2-year tracker deal with 5.95% interest rate would be £1,193, £324 more expensive than a 2-year fixed-rate deal with a 5.74% interest rate, and £864 more expensive than a 5-year fixed rate deal with a 5.38% interest rate.

Should I switch my tracker mortgage to a fixed rate?

While it might be tempting to wait for more rate cuts, this strategy comes with risks. While experts predict that rate cuts should come down, this is likely to be gradual, so waiting might not result in significant savings. Plus, there is always a risk that interest rates could start climbing again if inflation begins to rise, so there's no guarantee that fixed rates in the future will be lower than those currently on offer.

What to do if your mortgage deal is about to end:

If your current fixed-rate mortgage deal is ending soon, you have several options:

1. Lock in a new deal now

Remortgage offers are typically valid for up to six months, allowing you to reserve a deal now and wait to see what happens. If rates drop further, you re-apply to switch to a cheaper deal. If rates rise, you've secured a lower rate. Win-win!

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2. Avoid sitting on the SVR

If you don't lock into a new deal, you'll likely move onto your lender's SVR, which can be significantly higher. Last week, the average SVR was 8.16%, with some lenders charging even more. It's generally advisable to avoid staying on the SVR for longer, if at all.

Consider a tracker with no early repayment charges (ERCs)

If you want to hedge your bets that there will be further rate cuts but want to avoid high SVR payments, consider moving onto a tracker mortgage with no ERCs. This option allows you to switch to a better deal without penalties once rates fall.

Navigating the mortgage landscape following a base rate cut can be challenging, but understanding your options can help you make informed decisions. Whether you're considering a fixed-rate or tracker mortgage, or evaluating whether to lock in a new deal or wait, the key is to stay informed and proactive.