Video transcriptThe Council of Mortgage Lenders has issued a response to the recent decision of the Bank of England`s Monetary Policy Committee to reduce the UK`s base rate of interest to a new historic low level in August.
Already at a previous historic low of 0.5 per cent following the last change in interest rates at the height of the financial crisis in March 2009, the MPC has now cut rates by a further 0.25 per cent, to 0.25 per cent, in the wake of the UK`s decision to leave the EU.
Responding to this action, the Council of Mortgage Lenders stated that the decision is one that will affect mortgage holders across the UK in the coming months, but the facts are that many borrowers are unlikely to witness a considerable change.
He said: `We feel that the mortgage market is at present well capitalised, resilient and open for business. Housing market fundamentals are sound.`
Mr Smee on behalf of the council of mortgage lenders went on to add that since the last rate cut took place in 2009, average mortgage rates across the UK had fallen from 3.8 per cent to 2.9 per cent, and this latest change may do little to affect that.
The CML explained that average rates have remained relatively stable in recent years due to the base rate of interest being far from the only factor in determining costs for borrowers.
Funding costs, levels of competition, targeted levels of profitability, and an assessment of current and future market conditions are all relevant factors that lenders must take into account when setting the price of their products.
For new borrowers, the CML predicted that, despite this latest cut, mortgage pricing remains `extremely competitive` and is likely to remain so for the foreseeable future.
Meanwhile, as around 50 per cent of existing borrowers are on fixed term deals, the decision to reduce the base rate will not have an impact on this group until they come to renew their mortgage.
Of the remaining borrowers that are on variable rate agreements - approximately 4.9 million people across the UK, between 1.5 million and 1.9 million are predicted to benefit from this decision straight away, with lower costs for the remainder of their mortgage.
The CML did clarify, however, that in many instances, these reductions will be dependent upon rates not falling below the `collar` or lower floor price that is set out in their mortgage terms
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