Looking at exchange rates and its affect by the strength of the pound
More than likely the largest single factor that will affect demand for the pound is the economic health of the United Kingdom or how the market is expecting the UK economy to fare in the future.
Sterling is what is known as a free floating currency, so its exchange rate or its price in relation to another currency is determined purely by supply and demand. In simple terms the more the pound is in demand internationally, the stronger its exchange rate becomes.
Investors are likely to move savings away from weakening economies. The worsening of expectations for the UK economy during 2008 goes a long way to explaining sterling’s sharp decline.
Strength of the pound and its effects on the exchange rate. A higher interest rate will mean you will get a far better return on bonds and other Government securities, therefore this in turn will tend to attract financial capital from abroad. If currency markets expect the United Kingdom base rate to fall, the pound as a knock on effect will tend to grow weaker.
A currency is likely to weaken in order to correct a big trade deficit, which is unsustainable in the long-run, therefore making cheaper exports and imports much more expensive.
One of the effects for most families is an increase in the cost of travelling abroad. As a pound buys less of a foreign currency, hotels abroad, goods and services will become much costlier.
This will also mean that imported goods to the United Kingdom in turn will become dearer to consumers and to businesses that import raw materials or components as part of their production process. Meanwhile exporters who price their goods in sterling will benefit as their goods will become cheaper in overseas markets
Does Base Rate Cut Mean That Lenders Will Cut Rates?
Many consumers may be looking forward to seeing their borrowing costs fall as a result of the recent base rate cut, with senior officials from the government having announced earlier this month that they were shaving 0.5% off the base rate in a move to aid the flagging economy, increase confidence amongst consumers, and ease financial pressures amongst consumers. This was news that was greeted with joy by some industry officials and most consumers.
Most people assume that if the Bank of England cuts the base rate then lenders will also cut their borrowing rates by the same amount, but whilst this may have been true once it seems that it is no longer the case. In fact, a number of industry officials have expressed concern that there seems to be no connection between base rate movement and interest rate movement from lenders any longer, which could make things very difficult for borrowers
Following this latest base rate cut a number of lenders did react quickly and say that they were planning to pass on all of the rate cut to borrowers, and this means that some consumers will be able to cut their borrowing costs following the base rate cut. However, it is not all good news, as some lenders have decided that they will reduce their rates by only a fraction of the amount of the base rate cut, and others have said that they will not be reducing their interest rates at all.
Anyone that is looking for a new loan may find that the interest rates being charged are lower depending on which lender they go to, and those with existing loans may find that their rate is going to be cut if they are on a variable rate loan. Those with fixed rate loans and mortgages will not see any change in their repayments, as the interest rate is fixed for a period of time, and is therefore not affected by any changes in the base interest rate
It is best to take matters into your own hands if you want to save money on your borrowing costs following the base rate cut. As an existing borrower you can shop around and look for more competitive rates on loans, mortgages, and credit cards, and as a new borrower you can compare different financial products from a range of lenders in order to find the most competitive deal and get the most affordable repayments.
For existing mortgage holders it is worth remember that if your lender does not pass on the rate cut then it may be worth remortgaging and going with a lender that has passed the interest rate cut on. However, bear in mind that there could be arrangement fees and other upfront costs involved, so weigh up the costs to check whether the switch is going to be a viable one
Decrease Your Mortgage Interest
There is more to taking out a mortgage than just borrowing the money you need for the cost of the home. The various interest rates charged by mortgage lenders will seriously impact how much you pay over the term of the mortgage. This is the cost of financing the home and in the first few years of the mortgage, the bulk of your payments will be for interest with very little coming off the outstanding balance. You should search online to find what the interest rates are from the various lenders and read the information they have available about the mortgage process
When you have large enough deposit to place as large enough deposit on your mortgage, you will lower the amount of money that you need to borrow. Having an amount of money is also one way of ensuring approval for the loan as lenders know you do have a stake in making sure you do meet your monthly obligations. Reducing the amount you borrow will also result in lower interest rates so it won’t cost you as much to have a mortgage. There are lenders who will approve mortgages without a down payment, but they require you to have insurance cover for the amount of the usual down payment. This will increase your monthly payments in the premiums you have to pay for such cover.
If the interest rates are high at the time you take out the mortgage, choose a variable rate mortgage for a short term. In this way, when the interest rates go down, you can then lock in at a fixed rate for a specific term and know that your monthly payments will remain the same for that length of time. Opt for a mortgage that allows you to make extra payments once or twice a year. In such a plan, you can make a repayment of any amount in addition to your regular mortgage payment to cut down on your outstanding balance and therefore the amount of interest you pay in subsequent months.
Since the amount of interest you pay on your mortgage is based on your outstanding balance, you can cut down on this cost of your loan and pay off your mortgage in a shorter period of time by opting for bi-weekly payments. Instead of making your payment once a month, you make payments every two weeks. This does mean you make 26 payments a year, but it will help you to own your home much sooner.
The length of the term you choose can determine the cost of your mortgage. The shorter the term you choose will help you pay off the mortgage quickly. If you can afford to have higher monthly payments, this is one option you can use to save money on the cost of borrowing.
If you have funds available, it is better to have a deposit to place on the mortgage. This will reduce the amount of money you have to borrow to purchase a home. It will also mean that the lender will not require you to take out extra insurance cover on the mortgage to include the amount that you should have paid in the down payment