The months of October and November 2008 saw the Bank of England announce a reduction in base rate interest by a total of two per cent. But while the major banks were reluctant to pass this reduction onto consumers and small businesses, pressure from the government finally saw those that most needed this financial shot-in-the-arm receive the good news that the banks would indeed pass the saving down the line.
In addition to making savings based on the interest rate reduction, the SME sector can also be reassured by the plans of the government Business Secretary, Lord Peter Mandelson, who in agreement with the five major high street banks is creating a new panel to monitor how banks are lending to small businesses, which will provide data on the availability, risk and overall cost of lending to businesses.
For many landlords and property investors, the cut in base rate interest will represent a significant saving and many will undoubtedly consider taking the opportunity to maintain their current level of repayments in order to increase the rate at which their mortgages are repaid. However, in so doing, it is important to ensure that any overpayments are immediately credited rather than being held until the end of the year - otherwise, many will find their overpayments merely serve to repay interest on the mortgage loan, and not the mortgage capital.
Borrowers who find themselves on fixed rate or tracker mortgages, however, may not be in so fortunate a position. Fixed rate borrowers will unfortunately have to wait until the end of their fixed rate period before they can benefit from any rate reduction; whereas those on tracker mortgages may be affected by a rate 'collar' which will determine how low their mortage rate can drop.
A rate collar is a threshold that limits the level of how far the indexed rate can fall, regardless of how the base rate actually performs; so for example if the collar comes into effect at three per cent then even if the base rate were to drop below this level, there would be no additional drop for borrowers below the collar. While those on tracker mortgages will save due to the drop in rates, the actual savings may be limited in this way.
Those at the end of a special rate deal will usually have the option to remain with the same lender, but simply switching to the Standard Variable Rate. However, this is also an opportunity to look round the market to see if better terms can be secured elsewhere. But because the market has contracted so much, consulting a professional mortgage advisor who understands the buy-to-let market is essential, if considerable time is not to be wasted and possibly the 'wrong' loan selected.
Even though they could potentially drop further, the current depressed property market can represent an ideal buying opportunity for landlords to expand their portfolio while house prices are low. Buy-to-let mortgages are still available through some lenders, but beware that the LTV (loan to value) ratio may be lower than previously. With this in mind, it is once again essential to seek professional advice before making a decision.
Also, paying too much for your property owners insurance could be just as wasteful as paying too high an interest rate on your mortgage. The wrong type of cover could cost you more than necessary - or even worse, leave you with inadequate cover. Always ask your insurance broker what experience they have of dealing in this specialised sector.