"In a reducing rate environment, this can be very attractive to borrowers as it means there is more potential to achieve lower monthly repayments"
The Bank of England’s decision to cut the base rate to 4.75% at its November meeting is a positive sign that inflation is starting to stabilise after reaching record levels in recent years.
This should be good news for homeowners as reduced borrowing costs often means improved affordability and greater choice when taking out a mortgage. It also improves the range of products brokers can offer when advising their clients about their borrowing needs.
Improved affordability and increased choice are important aspects of the mortgage market, they are also very welcome after a challenging few years that has seen many borrowers struggle to secure the funding they need to buy a property.
This has been even more acute for borrowers and homeowners with complex and unique circumstances, such as non-standard incomes, historic credit blips, and unusual property types.
Already beset with not meeting the mainstream lending criteria of high street banks, these borrowers often find themselves struggling to secure the funding they need to buy a home.
In a challenging economic environment driven by soaring inflation and rising interest rates, these pressures increase even further, leaving many faced with higher costs and further limiting their borrowing options.
Improving affordability with variable rate products
While there is no indication of when, or if, the Bank of England will move to reduce the base rate again, the recent cut is the second to occur since August 2024. This should be seen as a positive sign and presents brokers with the opportunity to explore variable rate products with their clients.
One of the many benefits of a variable rate mortgage is that the interest rate is more closely aligned to the Bank of England base rate. Although this does not mean the underlying rate will automatically fall every time the base rate is cut, but if rates do fall, it does allow for improved affordability and greater financial flexibility.
In a reducing rate environment, this can be very attractive to borrowers as it means there is more potential to achieve lower monthly repayments, greater financial relief and possible long-term savings when compared to a fixed rate product.
Supporting borrowers with their borrowing needs
As a lender committed to helping borrowers with unique circumstances achieve their homeownership goals, Mansfield Building Society is always looking at ways it can help borrowers boost affordability and reduce the financial pressure they may be facing.
This is why we recently reduced the rates on our two-year discounted variable rate products across our Versatility and Versatility Plus range.
Our reduced discounted variable rates on our Versatility range offer borrowers greater affordability as well as more accommodating lending criteria. This can translate into more substantial monthly savings, which is crucial for many borrowers at the moment.
Not only have we made rate reductions of up to 0.24%, borrowers could potentially save up to 0.39% compared to our current equivalent fixed rate of 6.79%.
For example, for an average Versatility loan size of £188,000 over a 25-year term on an initial 5.95% discounted rate, borrowers could save over £50 per month compared to Mansfield’s equivalent fixed rate product.
Similarly, on the Versatility Plus discounted rate product with a loan of the same size, monthly repayments would be approximately £1,210.17, compared to £1,261.32 for the equivalent fixed rate.
Don’t wholly discount the discounted rates!
Of course, variable rate products are not for everyone, so it is important that brokers talk through the pros and cons with their clients before a final decision is made.
However, for borrowers seeking flexibility or are comfortable with some rate movement, opting for a variable rate mortgage could be a smart choice.
Doing so could offer benefits if there are further rate cuts, improve affordability and potentially help the borrower save money over the long term.
