On Thursday 19 March, just days after the base interest rate was cut from 0.75% to 0.25%, The Bank of England has slashed the base rate in a further emergency response to the coronavirus pandemic, reducing the rate from 0.25% to 0.1% The latest cut takes the base rate to its lowest-ever level.
Why are interest rates cut?
The Bank of England lowers interest rates in order to stimulate economic growth. Lower financing costs can encourage borrowing and investing and therefore encourage growth.
During the on-going COVID-19 crisis, more than 1,500 mortgages have been withdrawn from the market in the last two weeks. Mortgage lenders such as Nationwide and Satander have withdrawn loans to buyers with a loan-to-value of 75% (deposits smaller than 75% of the property’s value), while NatWest and Halifax will now only lend up to 80% of a property’s value to new customers.
Other lenders have withdrawn from the market entirely, including Vida Homeloans and Atom Bank.
Lenders have also completely withdrawn Tracker Mortgages, including: Nationwide, Newcastle Building Society, HSBC and The Mortgage Works.
What is a tracker mortgage?
The interest rate on a tracker mortgage is linked to the Bank of England base rate. So if the base rate changes, the mortgage rate will change.
So why are lenders pulling mortgage products from the market?
During the current ‘lock-down’, many non-essential companies have instructed all staff to either work from home or have furloughed their staff. This applies to employees who are not key workers – e.g. NHS staff.
What is the lock-down?
As of Monday 23 March – the prime minister has put the UK into lock-down and instructed all citizens to stay at home. People can only leave their homes to exercise once a day, go shopping for food and medication, travel for medical needs or to care for a vulnerable person, and travel to work only if essential.
What are furloughed workers?
Under the Coronavirus Job Retention Scheme, all employers in the UK will be able to access support to continue paying part of their employees’ salaries (up to 80%) who would otherwise have been laid off during the ongoing crisis.
Furloughed workers are those whose employers have asked to stop working but have not been made redundant. These workers may not be able to carry out their jobs during the crisis.
Lenders are currently restricting lending due to staff shortages and increased demand for payment holidays. They cannot cope with new business, so they are stating that these measures are only temporary. Everything should go back to normal once the crisis is over. We advise to stay calm as the restrictions on lending are temporary. For the best advice, contact your mortgage broker If you are looking to buy or re-mortgage during these unprecedented times.
Speak to JP-Finance for peace of mind:
Here at JP-Finance we receive the latest industry news prior to the general public and have the most up to date knowledge on lenders and any lending restrictions and limits.
If you’re looking to buy or sell your home, or you are worried about the current situation, speak to a member of our team for free advice.