What does an interest rate cut mean for mortgages?

Every six weeks or so, all eyes are on the Bank of England and its Monetary Policy Committee (MPC) – the group that decides whether interest rates will be increased, held or cut. How they choose to act has an impact on how much it costs banks to borrow money and what rates they can offer to savers and borrowers.

With all this in mind, what does an interest rate cut actually mean for mortgage holders and for those weighing up their options as they come to buy or move?

Will my mortgage now be cheaper?

For those borrowers that currently have a tracker mortgage – one where the rate closely follows the bank base rate (BBR) – they will see their monthly borrowing costs reduce almost immediately. This is because you will be paying less interest on your mortgage.

It is a similar scenario for those that are currently on a lender’s standard variable rate (SVR), which is a changeable rate set by the lender that typically comes into effect after a fixed rate period ends. These too are likely to be reduced following a cut, although it is important to note that lenders are not obliged to do so.

These types of mortgages only account for less than 1.5 million of the total outstanding mortgages (or 17%)[1], meaning that for the majority of mortgage holders, they won’t feel the benefit just yet.

What about my fixed rate mortgage?

The main reason is that the majority of mortgages in the UK are taken on a fixed-rate basis. This means that your monthly payments are fixed for set a period – typically, two, five or ten years. Whether interest rates rise or fall, the amount you will pay stays the same.

The only time this will change is when you come to change to a new deal, or do you nothing when your fixed rate ends and you to move to your lender’s SVR.

What does it mean for new mortgages?

While a change to the bank base rate doesn’t directly impact mortgage pricing, the overall outlook for interest rates does influence the mortgage rates offered by lenders.

Without getting too technical, this is because many lenders will purchase tranches of money to lend to customers, in addition to lending their own if they have the facility. The amount they pay is set using something called swap rates, which are ever-changing and heavily influenced by economic conditions, market expectations and general sentiment.

If swap rates decrease, then so does the cost for lenders to borrow money, allowing them to pass on savings to their customers and stay competitive. Often, but not always, the indication that interest rates are set to be cut – along with greater certainty around the future path of interest rates – can encourage swap rates to fall and reduce the borrowing costs for lenders and new mortgage holders.

Which option is right for me?

There’s no question that the decision made by the MPC plays a role in the mortgage process, whether it’s changing the amount you pay on a tracker or SVR, or what rate a lender may be able to offer you on a new mortgage.

Whether you’re looking to buy, move or re-mortgage, it can be useful to know what influences and mortgage pricing to make an informed choice. It’s also valuable to know what different options are available to you and how a change in interest rates – either positively or negatively – can change your monthly outgoings.

Working hand-in-hand with you, we will assess all your options and help you make the right choice for you and your individual circumstances. To book your appointment, please call us on 01744 612 388 or email us at info@ahal.biz

 

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Approved by The Openwork Partnership on 14/02/2025.

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The information a lender finds during a credit check is important – it could affect whether you’re able to borrow money, including through a mortgage, and the interest rate you’re offered. Yet, they can also seem perplexing.

Indeed, a Royal London survey found that a third of Brits had never looked at their credit report.

The good news is that we can help you cut through the jargon, so you feel more confident next time you apply for a loan.

Lenders usually carry out a credit check to assess how much risk you pose

Lenders carry out a credit check by looking at your credit report to understand how financially stable and reliable you are. Your credit report includes:

• Personal details, such as your name and address
• Borrowing and payment history
• Current borrowing and credit limits
• Details of people you’re financially linked to, like your partner.

If their check indicates that you are more likely to default on repayments, a lender may offer you a higher interest rate, which would affect your repayments and the total cost of borrowing, or even reject your application.

Hard v soft credit check

Two different types of credit searches can be carried out – a hard or soft credit check.

A soft credit check happens when you review your credit report or a lender checks to see if you’re eligible for certain offers. A soft credit check doesn’t show up on your report.

A hard credit check is usually carried out when you’ve made a finance application, such as a credit card or mortgage, and the lender wants to take an in-depth look at your report.

Hard credit checks may be noted on your credit report for up to two years and will be visible to other lenders.

Several hard credit checks in a short space of time may affect your ability to borrow as it could indicate you’re struggling to manage your finances. As a result, taking the time to understand which lenders are suitable for your needs could be useful as it may reduce the number of hard credit checks that are carried out.

A hard credit check can only be performed with your permission.

Don’t worry if you’re unsure about the two different types of credit searches and what they mean to you, we’re on hand to talk you through it all.

6 useful steps you could take to improve the outcome of a credit check

By reviewing your credit report and score before applying for credit, you may have a chance to improve how lenders view you. Here are six steps you may be able to take.

1. Search your credit report for any mistakes and contact the provider to fix them
2. Register on the electoral register to demonstrate stability
3. Reduce your outstanding credit
4. Pay more than the minimum payment on a loan or credit card
5. Avoid late payments by automating bills
6. Be careful about applying for new forms of credit.

Speak to your adviser if you have any questions

If you have any questions about your credit report or are worried about what it means for your future, including the ability to secure a mortgage, please don’t worry. You can contact us on 01744 612 388 or drop us an email info@ahal.biz to discuss your concerns and plans.

 

Your home may be repossessed if you do not keep up repayments on your mortgage.

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New Year’s resolutions over the Christmas period

The festive period seemed to start early this year with Christmas music played in stores from the middle of November.  It seems to indicate that people are starting their Christmas preparations well in advance – or certainly that the shops would like them to.

As we go into the Christmas break and towards the period of New Year, many of us look at what other preparations we need to put in place and we want to achieve in the year ahead.

Upsizing, downsizing and relocation

There is always a surge of people wanting to move house in January. Perhaps it is the increased number of people in our homes, together with presents and wrapping, which makes many of us realise our house is too small – or even too big if your family has flown the nest?

Alternatively, you may be aiming to change jobs and need to move to a different location? At any point when you’re looking to buy, it’s important to get the mortgage sorted first.

As soon as you start looking for a new home, an estate agent will want to know that you have the funds in place in order to buy, so it’s good to get in touch with a mortgage adviser that you trust as soon as possible before you start house hunting.  

It is possible to get what is called a ‘decision in principle’ from a lender, even before you’ve found a property, which will enable you to prove that you have the funds to buy a new home and will help to put you at the top of the list for viewings. It also means that any offer you put in will be taken more seriously than someone who doesn’t already have a mortgage lined up.

 

Remortgaging

It could be that you are staying in the same home but that you are one of the 1.8 million people, according to trade body UK Finance, whose fixed rate on their mortgage is coming to an end this year.

The most important thing is that you don’t let your mortgage go onto your lender’s Standard Variable Rate (SVR) or you will see a huge increase in your monthly payments. The average SVR across all lenders was 8.24% at the end of November, and 7% across the six big lenders.

Rollercoasters

Mortgage rates have been on a rollercoaster this year, going up, then down, then creeping up again since the budget.

Finding the best mortgage for your particular circumstances is a minefield.  Did you know, for instance, that at the start of November this year, there were 6,402 different mortgage deals to choose from?

Whether you’re buying or remortgaging, it is now impossible for any individual to go to a high street bank and know they are getting the cheapest mortgage. And in many cases, even if someone can find the cheapest mortgage, they may not qualify for it for a whole heap of reasons. Mortgage lenders need a borrower to fit certain ‘criteria’ before they lend to them. There are many thousands of criteria which look at everything from whether you’re self-employed to whether you receive maintenance or live in a leasehold property.

Help is at hand

Fortunately, we have tools and software that allow us to scan thousands of mortgages to find the right – and importantly, the lowest rate – mortgage for your individual circumstances. This includes many different mortgages that aren’t even available directly to the public.

So, in between the festivities this Christmas, if either you or your mortgage needs to change, get in touch with. It is never too early to see exactly what your options are and to start arranging the most affordable finance.  

To book your appointment, please call us on 01744 612 388 or email info@ahal.biz

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Approved by The Openwork Partnership on 12/12/2024.

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Why mortgage rates don’t always drop when the base rate does?

The Bank of England’s Monetary Policy Committee (MPC) is the group responsible for setting the bank base rate (BBR). This interest rate influences the cost of borrowing for banks and the rates they offer on loans, mortgages and savings, all with the ultimate aim of helping to control inflation.

When the committee meets roughly every six weeks, all eyes are on its decision. Based on a large number of factors in the UK economy and also abroad, the MPC will decide whether to raise, hold or cut the base rate.

You may expect a cut to the base rate to mean an instant cut to mortgage rates - however, this isn’t always the case. In reality, the base rate is just one component that influences the mortgage rates offered by a lender.

Swap rates

Another factor is something called swap rates – the rate lenders pay to access money to lend. Think of these like the stock exchange - they fluctuate all the time depending on economic conditions, global factors, market expectations and sentiment. If swap rates increase, then so does the cost for lenders to lend money.

When the economy is stable and inflation is on track, a decision to cut the base rate can cause swap rates to fall and almost instantly bring mortgage rates down. However, if swap rates become unsettled by economic events, future expectations for inflation or challenges abroad, a cut to the base rate may not be enough to calm swap rates, causing the cost for lenders to borrow money to increase.

We have seen this recently following the Chancellor’s Budget. The big policy announcements made by the Chancellor, along with concerns in the Middle East and uncertainty around the implications of the US Presidential race, unsettled swap rates and caused them to rise. Even with the positive news from the MPC to cut the base rate, it wasn’t enough to stop fixed rate mortgages increasing.

What about trackers or SVR?

It’s important to note that this swap rates something that mainly impacts fixed rate mortgages. A cut to the base rate will be felt almost immediately by those who are on a tracker mortgage – a flexible rate that follows the bank base rate – or if you are on a lender’s standard variable rate (SVR) – a changeable rate set by the lender typically after your fixed rate comes to an end.

This is only a minority of borrowers though, as according to UK Finance, 74% of homeowner mortgages are on a fixed rate contract, with 94% of new borrowers choosing this since 2019.

Supply and demand

Alongside swap rates, supply and demand is another factor that can cause mortgage rates not to drop if the base rate is cut. It may seem advantageous for one lender to offer a lower rate than their competition. However, if a rate is too competitive following a rise in swap rates, they may become overrun with new business enquiries and unable to cope with the demand.

In this instance, we may see some lenders decide to follow the herd and reprice their products, bringing them closer in line with their competition.

Separately, it is important to note that lenders have many internal factors that will decide whether they raise or reduce mortgage rates. This can include their own lending targets and future pipeline, competitor pricing and overall service levels, irrespective of swap rates or the bank base rate.

Get advice today

Understanding the factors that can contribute to mortgage pricing can be important in helping you make the right decision. While this can be confusing, with lots of factors contributing to the rates on offer, mortgage and protection advisers can offer plenty of knowledge, support and access to lots of lenders for those looking to navigate the market.

Whether you’re looking to apply for a mortgage, you are soon due to remortgage or you are just looking for some advice, we can help you find the right solution.

To book your appointment, please call us on 01744 612 388 or email us at info@ahal.biz .

 

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Approved by The Openwork Partnership on 27/11/2024.

 

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Are you protecting your pension contributions?

When it comes to planning for retirement, making sure your pension contributions are on-track is important. But life can throw curveballs like illness or injury which could make it tough to keep up with contributions.

Why Income Protection matters
Income protection insurance is designed to pay a proportion of your income, approximately 60-70%, if you are unable to work due to illness or injury. This financial safety net ensures that you can continue to meet your financial obligations, including pension contributions, even if you're unable to earn an income.

Protecting Your Pension Contributions
Here's why income protection is crucial for safeguarding your pension contributions:

• Continuity of Contributions
  If you're unable to work due to illness or injury, income protection ensures that you can continue making contributions to your pension fund. This helps you stay on track to achieve your retirement goals.

• Financial Stability
  Income protection provides you with a steady stream of income if you are too ill to work, ensuring that you can cover your living expenses, including pension contributions. This stability allows you to focus on your recovery without worrying about financial pressures.

• Long-Term Security
  By protecting your ability to contribute to your pension fund, income protection safeguards your long-term financial security. It ensures that you have sufficient funds to support yourself in retirement and enjoy the lifestyle you planned for.

• Peace of Mind
  Knowing that your pension contributions are protected by income protection provides peace of mind, both for you and your loved ones. You can rest assured that your retirement savings are secure, regardless of any unexpected health challenges that may arise.

Talk to us to explore your income protection options and we can tailor a plan that meets your specific needs and circumstances. With income protection in place, you can enjoy peace of mind knowing that your retirement fund is protected against life's uncertainties.

Call us on 01744 612 388 or drop an email to info@ahal.biz

 

Approved by The Openwork Partnership on 02/10/2024.

 

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Autumn Budget 2024: Winners and Losers

 Chancellor of the Exchequer Rachel Reeves outlined the Government’s financial plans for the next five years. The measures, which will raise up to £40 billion for public finances, aim to “restore economic stability” and put “more pounds in people’s pockets”.

 On 30 October 2024, Chancellor of the Exchequer Rachel Reeves announced the UK Government’s Autumn Budget alongside the Office of Budget Responsibility’s economic and fiscal forecast. The measures aim to raise more than £40 billion in taxes, plugging an alleged £22 billion black hole in public finances left by the previous government. Reeves committed to drive economic growth, but also said that the Government wouldn’t borrow to fund current spending whilst maintaining the Bank of England’s inflation target of 2%.

 Commenting on the Budget, Reeves said: “This Government was given a mandate to restore stability to our economy and begin a decade of national renewal. To fix the foundations and deliver change through responsible leadership in the national interest. That is our task, and I know we can achieve it.”

 So, what are the potential impacts of these new measures? Below we outline who stands to benefit from these changes and who might be negatively affected. Let’s start with the positives.

 

The Winners

 The NHS

The Chancellor pledged to significantly increase public spending on the NHS. Reeves promised a £22.6 billion increase to the “day-to-day" budget of the NHS alongside a £3.1 billion boost to its capital budget over the next two years. The Chancellor commented that this would be the “largest real term increase in NHS spending outside of COVID since 2010.”

 

Sustainable transport and energy

Reeves also announced that the National Wealth Fund would be used to invest in key areas like gigafactories and green hydrogen plants across the country. Meanwhile, over £2 billion will be invested in supporting the automotive sector’s transition to electric vehicles.

 

Property developers

Funds for the Affordable Homes Programme will increase to £3.1 billion to help Labour deliver on its promise to build over 1.5 million homes. Reeves said the Government would hire hundreds of new planning officers and make reductions to Right to Buy discounts, putting more money into the pockets of local councils. This news could incentivise investment in the UK’s property market and make it easier for property developers to build new homes in the UK.

 

Drivers

Reeves confirmed that the freeze on fuel duty will continue for another year, meaning drivers could save approximately £60 a year at the pumps. The freeze will cost £3 billion a year, but the Chancellor was clear that she wanted to ease “the burden on motorists”. This move could help relieve the fiscal pressure on delivery drivers, couriers and supply chains throughout the country.

 

Young and low-income workers

The Chancellor announced that the Government is increasing the National Living Wage for workers aged 21 or over by 6.7% to £12.21 an hour (which could be worth up to £1,400 a year for a full-time worker) and increasing the National Minimum Wage for 18–20-year-olds by 16.3% to £10 an hour. Reeves also confirmed that National Insurance won’t be increasing for workers. Increases to the National Living and Minimum Wages are intended to provide much-needed support to those on the lowest incomes.

 

 

Small businesses

The employment allowance for business will increase from £5,000 to £10,500, reducing the National Insurance liability of small businesses. The Chancellor said that this would mean around 865,000 would pay no National Insurance in 2025, providing welcome relief for SMEs who are struggling to retain an effective workforce and attract applicants without a hit to their profits.

 

The Losers

 Employers

Reeves confirmed that employers' National Insurance contributions will increase to 15% from April 2025. The Government is also reducing the threshold at which employers start paying National Insurance from £9,100 to £5,000 per year. Furthermore, the Chancellor announced that the current freeze on income tax thresholds would end in four years. From 2028, personal tax bands will be updated in line with inflation.

 

These changes will have a direct impact on British employers, but they could also have a knock-on effect for employees. Many businesses use savings on National Insurance to fund pension contributions or employee benefits. If the increased burden of National Insurance contributions proves too harsh, employees could lose these benefits as a result.

 

New businesses and investors

The Chancellor announced an increase in the lower rate of Capital Gains Tax (CGT) from 10% to 18% and the higher rate from 20 to 24%. She noted that, even with these increases, the UK will still have the lowest capital gains tax rate of any European G7 economy. But some analysts argue that the move could alienate investors and even decrease tax revenue overall if investment is pulled from UK startups.

 

Foreign investors

Reeves also announced sweeping changes to the tax status for non-domiciled high-net-worth individuals operating in the UK. The Chancellor said that Labour would “abolish the non-dom tax regime, and we will remove the outdated concept of domicile from the tax system from April 2025."

 

The government is also set to extend the Temporary Repatriation Relief to three years with the aim of bringing billions of new funds into the UK. The independent Office for Budget Responsibility estimates that this could raise £12.7 billion over the next five years.

 

Second homeowners

The Stamp Duty land tax for owners of second homes (known as the Higher Rate for Additional Dwellings) increased to 5% from 31 October 2024. The Chancellor said that the move is designed to “support over 130,000 additional transactions from people buying their first home or moving home over the next five years." However, this increase could have an impact on landlords, property developers, and the owners of holiday homes and other rental properties.

 

Private schools

All education, training and boarding services provided by private schools will now be subject to VAT at the standard rate of 20% from 1 January 2025. Private schools also won’t be able to claim back VAT on the supplies and services they pay for.

 

What’s Next?

 The Autumn Budget contained several key changes that are likely to have significant impacts on individuals and businesses across the UK. There’s a lot of information to process and it may not be immediately clear how the

changes set out in the Budget will affect you. If you have any questions about whether you are a winner or a loser from the Autumn Budget, and how it will affect you and your finances, please get in touch.

 

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

Approved by The Openwork Partnership on 30/10/2024.

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Here's how financial protection can offer security for parents

Serious illness can place immense stress on our families. The cost of caring for an unwell child, worry over access to essential services, and the emotional toll of serious illness are all things that no parent wants to think about.

We can’t predict what the future will hold for the health of our families, but we can take proactive steps to prepare for the risk that we or our children might become critically unwell.

Appropriate financial protection can be a vital safety net for parents, providing essential cover for children and easing the pressure of caring for them.

Critical illness payouts can help you care for your child

No parent wants to consider the possibility of their child becoming seriously ill, but planning for the worst can offer the greatest peace of mind. Robust and appropriate financial protection can help shore up your finances and allow you to focus on caring for your child.

Critical illness cover pays out a lump sum if you are diagnosed with an illness covered by the policy. Many of these policies include cover for a child of the policyholder, paying out a proportion of the full amount if they become seriously ill. This payout provides a financial safety net, covering your expenses and allowing you to take time away from work to care for your child.

Critical illness cover may also come with other benefits that can offer further support for your family, such as:

• A payout if your child is hospitalised because of an accident.

• Cover for the cost of accommodation so that you can be close to your child if they’re in hospital.

• Childcare costs if you’re diagnosed with a serious illness that’s covered by your policy.

The cost of critical illness cover varies depending on how large you want a potential payout to be, as well as other factors like your age and general health. It’s important to note that you’ll only be covered as long as you keep paying your premiums.

Children are often automatically included in critical illness cover but this isn’t guaranteed. Contact your provider for clarification and be aware that your premiums could rise if you add a child to a policy that doesn’t already cover them.

Cover for a child typically starts from the first few weeks after birth and lasts until they’re 18, or 21 if they’re in full-time education, but this can vary between providers. There may be other restrictions to critical illness cover that you should be aware of – some policies will only allow one claim per child whilst others might exclude certain conditions that are present from birth.

It’s important to check the details of critical illness cover thoroughly when comparing your option to make sure that you’re buying the right cover for your circumstances.

Private medical insurance could help provide better care for your family

You may want to consider taking out private medical insurance to complement the security that financial protection could offer you. The Guardian reports that the private health insurance market has grown by £385 million in the last year. At the same time, rising wait times and staff shortages are causing public satisfaction with the NHS to slump according to the long-running British Social Attitudes survey.

Private medical insurance can help to put your mind at ease by reducing waiting times for a range of services (like tests and consultations) whilst giving you a wider choice of treatment providers. It could also help to cover the cost of a private room, giving you and your family greater privacy if you need to stay in hospital overnight.

Private health insurance can cover much more than just physical illness. Some providers offer access to counselling and mental health services which are becoming increasingly important for the wellbeing of younger generations – the number of children and young people seeking support for their mental health increased by 25% from 2022 to 2023 according to data from Aviva.

The cost of private health insurance and the level of cover you’ll receive are influenced by a range of factors, including who you want the policy to cover, your lifestyle, and family medical history. It’s important to take the time to understand how comprehensive your options are and any exclusions that might affect your family.

Talk to us to see how we can help protect your family

Financial protection is just one way that you can prepare for the unexpected. Get in touch if you’d like to know more about financial protection for your family against serious illness.

Please note: Financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. Cover will lapse if premiums are unpaid. Cover is subject to terms and conditions and may have exclusions. Definition of illnesses vary between providers and will be explained in policy documentation.

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How important is your credit history for mortgage lenders?