Bank of England holds the base rate at a record low and reignites the debate over negative rates

Most borrowers will benefit from rock bottom mortgage costs, but the market remains challenging for first time buyers and the self-employed.

The Bank of England on Thursday held the base rate at 0.1%, which will be welcomed by most borrowers who can enjoy rock bottom mortgage rates for longer.

In recent days we've even seen some lenders further reduce the cost of borrowing at lower loan-to-value (LTV) ratios.

However, anybody that needs finance at 85% LTV and above are facing substantially higher rates than at the outset of the pandemic.

That's because lenders are now grappling with such a large volume of transactions that raising the cost of these mortgages, which are generally used by first time buyers and the self-employed, is the most efficient way of controlling the flow of new applications.

The fact that some lenders have cut mortgage costs at lower LTVs may be a very early sign that the surge in transactions is subsiding.

Should activity subside materially, we expect the high street lenders to begin competing for business once more, at which point we should see higher LTV mortgages move back in line with the rest of the market.

The Bank of England also confirmed it had plans to explore how a negative base rate could be implemented effectively and will begin “structured engagement” with the Prudential Regulation Authority on how that might work in practice during the final three months of 2020.

To understand how a negative base rate might effect mortgage borrowing, click here.

If you would like to discuss your mortgage requirements, please get in touch. We cover the whole market and, regardless of your circumstances, we can advise on the best way forward.