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Your Money > Mortgages Articles > Will the banks...
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By Sarah Modlock
The Bank of England has exceeded expectations at cut interest rates by a whopping 1.5% to 3% - the lowest mark in over 50 years. Unfortunately, a cut might not make much difference to millions of borrowers. Even tracker rates, which are directly linked to interest rates, may not do the business because of small print. Pocketing the difference How can this be? Traditionally, some lenders have been slow to pass on or implement rate cuts. Some pass on smaller cuts and others do not pass them to borrowers on at all, although most are quick to cut rates for savers. Now the refusal to follow the Bank's move is becoming, well, just blatant. But last month's 0.5% cut was passed on by less than half of lenders, many of which did not cut their rates by the full half point.
Big lenders that have accepted government bailouts - Halifax, NatWest and Lloyds TSB - are thought most likely to pass on the benefit because of political pressure. Others are standing firm. David Hodgkinson, chief operating officer at HSBC, said this week that there would be some "stickiness" in mortgage rates and that home loan rates were unlikely to fall in line in the short-term. Liberal Democrat Treasury spokesman Vince Cable said it was "difficult to see the justification" for the banks not passing on the cut, adding: "Banks are only too happy to increase the cost of lending when interest rates go up. For customers to get a fair deal, this needs to be a two-way street. "When the whole banking industry owes so much to taxpayers for their very survival, any bank will find itself on very thin ice if it is found to be unfairly profiteering from its customers. As the credit crunch continues to keep millions of customers and small businesses in a stranglehold, borrowers need interest rate cuts now." Beware the trackers that won't track..... If you're on a tracker rate now, then you probably feel relieved that you managed to secure the deal ahead of the current mortgage mayhem. And as the base rate starts to drop, you should expect your monthly payments to shrink accordingly. Some of you, however, will be in for a very nasty shock. You need to check the small print on your mortgage documents to find out whether there is a 'collar' attached to your deal. "Most mortgage companies have a clause in their terms and conditions that allow them to get out of tracking base rates down to zero - but only in exceptional circumstances," says Ray Boulger, of broker John Charcol. "But if rates comes down normally, I wouldn't expect the mortgage firms to use those clauses and deny customers lower rates." He says that the Nationwide has a ceiling in place that means its tracker customers interest rates can't go below 2.75%, irrespective of what happens to base rates. Halifax has an option not to pass on rate cuts below 3%, but given that the government has taken a substantial stake in parent firm HBOS, it would be under pressure to pass on rate cuts. Customers with Nationwide, Skipton and Yorkshire Building Society should also check their small print. Brighter news if you're with Abbey, RBS or Woolwich. They all said recently that their tracker rates would go as low as the BoE base rates dared. HSBC is somewhere in the middle and interpret its terms as market conditions emerge: "The intention is that tracker mortgages will track downwards, as rates fall. However, the tracker terms and conditions do say that we reserve the right not to pass on cuts in base rate to tracker customers if there is a material change in the mortgage market. "We have no appetite to do so, and our intention is to continue to meet our customers' expectations and pass on rate cuts," says an HSBC spokesman.
Standard Variable behaviour Not so long ago, homeowners would have been able to look for better deals and save money through a fixed, capped or tracker rate mortgage. Now the market has shrunk and re-mortgaging is so much harder, many are languishing on notoriously expensive SVRs. It is believed that as many as one third of homeowners are now stuck on an SVR. "Banks and building societies are now facing tough decisions in light of news that the Bank of England will take an aggressive approach on future cuts in base rate," says Darren Cook, mortgage expert at Moneyfacts.co.uk. "The base rate is expected to fall again this week but we could have the situation where even less or no lenders choose to pass on a benefit to their customers." Last month, Abbey decided to announce its measly 0.15% cut at the very end of October. Standard Life Bank also waited until then but passed on the full reduction. Alliance & Leicester waited until the 21st to announce its 0.25% cut. The current lowest SVR is the 5.5% offered by First Direct according to figures from Moneyfacts. The most expensive from a major lender is the 7.34% from Northern Rock. Remortgaging is set to remain a grim prospect in the new year, with lenders favouring high deposits and equity - not easy as bills rise and house values fall. If you shop around for the fixed, capped or tracker deal without success, don't just settle for the SVR. Ask your existing lender about the rates they can offer you aside from the SVR as some - particularly bigger lenders - will be able to provide a slightly better deal. After all, every penny counts. Useful links: |
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