Last week was good news for homeowners wasn’t it?
First we had the shock 1.5% interest rate cut. Then we had the Government telling the main mortgage lenders that they need to pass the rate cut on to us all.
However, it's important to ask yourself this question:
Is my lender going to give me the benefit of the 1.5% rate cut or are they going to be tighter than Scrooge McDuck and keep it for themselves?
After the Bank of England's base rate was cut from 4.5% to 3% last Thursday, Prime Minister Gordon Brown urged mortgage lenders to pass on the 1.5% cut to us all.
Lloyds TSB and the Abbey were first to announce they would pass on the full cut and they were soon followed suit by NatWest, Nationwide, RBS and Halifax.
Barclays, HSBC, Alliance & Leicester, Bristol & West, and Britannia are some of the bigger mortgage lenders who are currently reviewing their rates and are yet to make a decision.
A number of building societies have said they could take weeks to decide whether to pass on the cut. This would be to consider the effect on savers and to monitor LIBOR (the London Inter-Bank Offered Rate) which is the rate at which banks lend to each other.
- Halifax stitching you up?
Halifax was one of the first of the major lenders to say they would pass on the full rate cut to its customers…
…but did you know that it is now threatening to deprive as many as 500,000 of you of further rate cuts because of a “collar” clause in your contracts?
The cut in interest rates was worth more than £4 billion to the 2.5 million homeowners with tracker mortgages or £166 a month on a typical £200,000 loan.
However, Halifax tracker mortgage customers may not benefit from any further drops in rate, since it reserves the right to impose a 3% “collar” on tracker mortgages.
This means it does not have to pass on rate cuts when Bank rate falls below that level!
The clause (which also applies to Halifax brand BM Solutions but not Intelligent Finance) could be in breach of the Financial Services Authority’s rules, which state that collars must be highlighted clearly in mortgage documents; and mortgage advisers claim Halifax has failed to do this.
Halifax initially played down its intention to rely on the clause but it might invoke the clause after all, saying: “It is . . . important to recognise that all banks have a need to balance savers’ and mortgage borrowers’ rates.”
If Halifax does invoke its collar, you will have the option to switch to another mortgage without penalties, although it would probably mean facing higher rates.
Darlington building society has also slapped a 4.5% collar on its trackers this year, so those of you who took out deals with them will not benefit from the last rate cut. If you have a mortgage with Chesham building society, then you too will miss out, as it has a 3.5% collar.
Skipton, Yorkshire, Norwich & Peterborough, and Scarborough building societies, as well as Accord, have a 3% collar.
Check out some of the most popular mortgage lenders
- Winners and losers in the rate cut
The big winners will be those of you with a tracker mortgage that is pegged to the base rate; that means that around 30% of you should see your mortgage repayments fall substantially.
To put this into context, monthly mortgage repayments fall by around £15 to £20 on a £100,000 mortgage for each 0.25% cut.
Therefore, a hefty 1.5% cut in rates equates to £90 to £120 wiped off your monthly repayments on every £100,000 borrowed. But the good times may stop there for many of you tracker borrowers because of a clause written into your contracts.
Since the Bank of England's announcement, 34 mortgage lenders have withdrawn tracker products in an unprecedented flight away from the sector.
What is likely to happen is that lenders will raise the premiums they charge above the Bank base rate, so you will see only a partial reduction in what you pay.
Likewise, those of you looking to remortgage with high loan to value ratios [LTV] are finding that deals are not getting cheaper. Some of you are unable to remortgage, as other lenders do not want to take on the high LTV risk, and this leaves you stuck on your lender's standard variable rate when your deal comes to an end.
Fixed rate mortgages are getting marginally cheaper though, with rates on 2 and 3 year deals getting lower, reflecting reducing long-term money market rates. It is worth bearing in mind that those of you with higher LTVs may find your path blocked to the best fixed-rate deals.
(Please note that articles on Money Hospital do not constitute regulated financial advice. The articles are intended to provide general personal financial information, and are based on journalistic research. We urge you to consult an Independent Financial Adviser (IFA) before making any important decisions about your finances. All rates are correct at time of printing but are subject to change without notice.)
Get unbiased mortgage advice
Claim back your mortgage exit fees