The Bank of England (BoE) has reduced its base rate for the second time this year, now pegging it at 4.75%. The move is good news for many homeowners and mortgage applicants, particularly those in the tracker mortgage club, but exactly how much will your mortgage payments go down following the BoE’s latest cut? Here, you can find out.
How much will your new mortgage payments be?
If you are on a tracker mortgage, your mortgage payments will go down by roughly the same amount the BoE has cut the base rate by: 0.25%. In real terms, the average tracker mortgage in the UK will come down by roughly £25 a month per £100,000.
Anyone on their lender’s standard variable rate (SVR) is likely to see a similar saving, but this is not guaranteed. Most lenders reduce their SVR whenever there is a base rate increase, but they won’t necessarily do this immediately, and the exact reduction may vary.
Reductions will also vary on other types of variable rate mortgage such as discount and capped rate mortgages. The amount they will come down by may differ on a product-by-product basis and should be roughly in line with the base rate reduction.
How to calculate your new repayments
You can use our calculator below to get a rough idea of how much the repayments will be on a tracker mortgage following the BoE’s decision to reduce its base rate to 4.75%.
We have set this calculator to return results based on an interest rate of 4.75%. The default mortgage amount has been set to £195k, the term length 25 years and the mortgage type to capital repayment - all of these values can be changed manually for comparison purposes.
To get a direct comparison between your new mortgage payments and the old ones, enter your previous interest rate into the calculator tool along with the relevant details of your mortgage and work out the difference between the two sets of results.
Keep in mind that these results only paint an approximate picture of a tracker mortgage as lenders usually add their own percentage point on top of the BoE base rate figure.
How much will the cost of a fixed-rate mortgage fall by?
Those locked into the introductory rates period of a fixed-rate mortgage will see no immediate change to their repayments, but if your fix is due to expire in the coming months, you might find that you end up on a lower rate than before following the base rate shift.
Most mortgage lenders have already priced their product ranges with a 4.75% base rate in mind, as the BoE’s latest reduction was widely expected, but several lenders may have held off to be certain a cut was coming, and they may introduce lower-rate deals now that it has.
If you are approaching six months before your fixed rate experiences, it’s a good idea to speak to a mortgage broker to find out whether there is a superior rate available.
How much will your mortgage go down by if you make overpayments?
There are two ways to make overpayments: as a lump sum or as a result additional amount on top of your standard mortgage payment. You can use our calculator to work out your new mortgage payments in the event of making a lump sum overpayment.
- Lump sum calculation: Subtract the lump sum amount from your outstanding mortgage balance and enter the resulting figure into the calculator on this page.
- Regular overpayments: NatWest’s website has a bespoke calculator you can use to work out how much your mortgage will go down by with regular overpayments.
How to take advantage of the rates drop
Those on a tracker mortgage that is tied to the BoE base rate will see an immediate reduction in weeks or months, depending on when your next payment is due. But if your introductory rates period is due to expire in the next six months or so, there could be a better tracker mortgage deal out there following the central bank’s latest cut.
The same applies to fixed-rate mortgages that are due to expire. With the base rate drop now confirmed, mortgage rates on fixed-rate agreements may follow.
The best way to take advantage of the lower rates available is to speak to a whole-of-market mortgage broker - they have access to every deal on the market and can ensure you choose the most suitable one, with the most favourable rate in the current climate.
You can compare the latest mortgage rates yourself for free below, or jump straight into a chat with a broker:
