Lack of understanding over base rate and mortgage repayments

Wednesday 14th December 2016

Only one in four mortgage borrowers is aware of how reductions in the Bank of England's base rate affects their repayments, according to research carried out by Trussle, the UK's first online mortgage broker. 
The Bank of England cut the base rate for the first time in more than seven years in August 2016, to help stimulate the economy post-Brexit and protect house prices. 
The base rate had already been held at historic lows of 0.5%, but it was cut even further, to 0.25%, by the Bank's nine-strong Monetary Policy Committee. 
Mortgage rates dropped not long after the base rate cut, with tracker rates dropping in line with the Bank of England's and fixed rates also hitting record lows. In fact, some two-year fixed rate deals were available for as little as 1.39%.
Nonetheless, lender SVRs – the ‘default’ rates that borrowers often find themselves on as soon as an initial rate has ended – did not drop anywhere near as much. Prior to August's base rate reduction, the average SVR was 4.8%. By November, though, this had only dropped by 0.17% to 4.63%.
This growing gap between the best and worst rates on the market means that people stuck on expensive SVRs (Standard Variable Rates) could currently save £380 per year by switching to a fixed rate deal. What was once an average yearly saving of £3,120 has gone up to £3,500 thanks to the Bank of England's decision to cut the base rate. 
Trussle's findings, conducted on their behalf by YouGov, also found that men are more likely to understand the impact of a base rate cut than women. While just 27% of mortgage borrowers knew about the base rate effect, there was still a large disparity between men and women – with 35% of men claiming to understand the impact of a base rate cut, compared to 19% of women. 
It's the same story when it comes to keeping track of mortgage repayments, with 33% of men claiming they did so, compared to 23% of women. 
Surprisingly, only 36% of the borrowers surveyed said they were happy with their current mortgage deal in an era of rock-bottom mortgage rates. Despite this lack of contentment, only 6% of borrowers have considered switching to a better rate since the Bank of England's move. “Too much hassle” and “too complicated” were given as the main reasons for this reluctance to switch. 
“The mortgage sector is shrouded in a level of complexity and jargon that continues to discourage borrowers from acting swiftly to secure a better deal,” Ishaan Malhi, CEO and Founder of Trussle, said. 
“The base rate is the most significant factor affecting mortgage rates, so it's a shame that so few understand its effect on the most important financial commitment of their life.”
He added: “The industry has a role to play in demystifying mortgages for consumers, educating borrowers to make mortgages more accessible, but it’s vital that borrowers are clued up about when and how they should switch to a better rate, especially since today's rates are as low as they've ever been.”

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