Everything you need to know about remortgaging in the current economic climate - according to a finance expert

by Derin Clark

With what is happening in the UK right now, remortgaging will likely not be top of your priority list. But, with many people’s finances expected to take a hit over the coming months ensuring that you’re paying as little for your mortgage as possible may help to ease the financial burden.

The Bank of England recently and unexpectedly announced a base rate cut by 0.50% (50 base points), cutting it from 0.75% to 0.25%. Normally, this would be good news for mortgage borrowers as it makes the cost of borrowing money cheaper, which usually results in mortgage lenders dropping their mortgage rates.

Saying this, over the last 12 months the mortgage market has been very competitive which has resulted in many mortgage lenders with very close margins which might mean that they are unable to cut their rates anymore.

Tracker mortgages

The first mortgage borrowers to see a benefit in base rate cuts are those on a tracker mortgage. Unlike fixed rate mortgages, which is what a vast majority of borrowers opt for, a tracker mortgage rises and falls depending on base rate. This type of mortgage is often considered riskier than fixed mortgage deals, especially as the rate can rise quickly if base rate is increased.

The recent base rate cut seems to have already impacted tracker mortgage rates, as research carried out by Moneyfacts.co.uk found that the average rate on a two-year tracker mortgage fell by 0.15% in just one week, decreasing from 2.03% on Tuesday 10 to 1.88% on Tuesday 17 March 2020.

While this might make remortgaging on a tracker mortgage attractive, borrowers should be aware that the 0.5% base rate cut is only being passed on to those with an existing tracker mortgage.

Those thinking about taking out a new tracker mortgage should ensure that they are also getting an attractive deal as some mortgage lenders, such as Nationwide, have actually increased the tracker mortgage rate for those taking out a new tracker mortgage.

Fixed rate mortgages

Fixed rate mortgages have been a lot slower to pass on the base rate cut to borrowers. Comparing the average mortgage rates from Tuesday 10 and Tuesday 17 March 2020 found that the average two-year fixed rate on all loan-to-value (LTV) mortgages fell by just 0.01%, from 2.43% to 2.42%.

This was also the case with the average five-year fixed rate on all LTV mortgages which dropped by 0.01%, from 2.74% to 2.73%. While it can take up to three months for lenders to pass on base rate cuts to borrowers, as already highlighted, at the moment competition within the mortgage market is already intense, so lenders might not have the capacity to pass on further cuts to borrowers

What does this mean for those looking to remortgage?

For mortgage borrowers coming to the end of their mortgage deal or who are already on a standard variable r