Will Your Mortgage Rate Be Cut?

Posted on: 12 January 2009 by Gareth Hargreaves

Homeowners are hoping for further mortgage rate cuts after the Bank of England cut the bank rate from 2% to a historically low 1.5%.

It is a sign of the times that a 0.5% cut in the bank rate feels relatively unsubstantial, despite taking interest rates below the previous record low of 2%.

Last month some lenders passed on the full 1% cut in their standard variable rates – SVRs - while others passed on only some of it.

This time, banks and building societies will trade on the current sentiment for protecting savers and try to avoid taking SVRs down by the full 0.5%.

Nationwide Building Society has confirmed that it will not pass on the cut to its tracker mortgage borrowers as it imposes its mortgage floor.

Halifax will pass on the cut to tracker borrowers and HSBC will also pass on the cut in full to existing and new trackers.

Ray Boulger, of independent mortgage brokers John Charcol, says 93% of the UK's 4m tracker mortgages will see the full benefit of the cut.

Who Has Cut Rates?

  • Cheltenham & Gloucester has cut its SVR by 0.5% to 3.5%
  • Cheshire BS has cut its SVR by 0.5% to 3.5%
  • Derbyshire BS has cut its SVR by 0.5% to 3.5%
  • Halifax has cut its SVR by 0.25% to 4.5%
  • HSBC has cut its SVR by 0.5% to 3.94%
  • Lloyds TSB has cut its SVR by 0.5% to 3.5%
  • Nationwide has cut its SVR (base mortgage rate) by 0.5% to 3.5%
  • Natwest has cut its SVR by 0.25% to 4.19%
  • RBS has cut its SVR by 0.25% to 4.19%
  • Skipton BS has cut its SVR by 0.5% to 4.5%

What Should Borrowers Do?

Andrew Montlake, of independent mortgage broker Cobalt Capital, says “If you're on a tracker mortgage and your lender hasn't triggered its collar, then you'll be knocking back the last of the Christmas sherry today.

“Likewise if you're on a standard variable rate and your lender passes on all, or even some, of the cut. What matters most, though, is if and how this latest cut will affect the dynamic of lending generally.

“I suspect we are very close to the limit at which lenders can profitably offer mortgages. The products offered in the next few months could be the best we are likely to see in the current cycle.

“People who opt for a fixed rate mortgage now could do very well, as interest rates will have to rise, perhaps as quickly as they have fallen, once we begin to exit the recession.”

Tracker Mortgages & Collars

Halifax tracker customers have had good news with parent group HBOS saying it will not exercise an option in the mortgage's terms and conditions allowing it not to pass on all or any reduction when the bank rate is below 3%.

Nationwide will enforce the 2.75% floor on its tracker mortgages. This means it will not pass on the cut.

Will Your Rate Fall?

Borrowers on variable rate mortgages should see their repayment costs fall, while those on fixed rates will remain on the same rate until their deal period runs out. The cost of new fixed rate deals will fall following the rate cut.

Those on tracker mortgages that have no 'collar' will see their payments automatically fall next month in line with the 0.5% cut. Those with clauses written into their contracts putting a floor on their mortgage rate must wait to see if their lender exercises the clause.

Meanwhile, those on standard variable rates, or whose mortgages move in line with or are discounted from SVRs, must wait to see how much lenders cut their rates by and whether they pass on the full 0.5% decrease.

Has your mortgage been cut? Are you pleased with your cut?

Let us know by leaving a comment in the box below or share your thoughts with other readers in the 50connect forums.

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