Good news for borrowers as mortgage rates are set to drop

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Good news for borrowers as mortgage rates are set to drop

For those who have an existing tracker mortgage, the announcement by the Bank of England that a there will be a 0.5 percent cut today will be enough to warrant a smile; this is because those whose tracker mortgages follow the base rate will automatically see a fall in their monthly repayments.

However, the half percent cut in the interest will not be of advantage to everyone, for those who are holders fixed rates will be cursing themselves, and if you are on your bank or building society’s standard variable rate [SVR] then you are not guaranteed that your financial institution will pass on the reduction to you. Not all the banks and building societies have announced if they are going to pass on the rate reduction to their customers.

The Halifax (part of the Halifax Bank of Scotland group - HBOS), the second largest mortgage lender in the United Kingdom, whose current standard variable rate (SVR) stands at 7 percent has confirmed that it will pass on the interest rate reduction to its customers thoughts its tracker mortgage starting from the 1st of November. The new standard variable rate (SVR) that the customer of the Halifax will enjoy will be 6.5 percent.

Cheltenham and Gloucester the mortgage arm of Lloyds TSB have also stated announced their intentions. Their clients can also afford to smile a little as they will also be reducing their standard variable rates (SVR) from 7 percent to 6.5 percent. They have stated that their reduction will take effect from the 1st of November, a similar move to that of the Halifax.

This cut in the Bank of England’s base rate, as reported, will benefit approximately a third of the 11.7 million mortgage borrowers in the United Kingdom who have existing mortgage debts as the majority are on fixed rates. We are yet to see what the effect of the reduction of the base rate will have on the majority of mortgage lenders and what they will do with their fixed rate mortgages; in reality fixed rates mortgages usually follow Libor and not the base rate.

Experts from the City of London are suggesting that we could witness more base rates reductions from the Bank of England in the coming months. They claim that the rates could fall to as low as 3.5 percent; however this significant drop will start to be witnessed probably by the middle of 2009. If this does happen it will be welcomed relief for many thousands of mortgage borrowers in the United Kingdom.

What is a Standard Variable Rate (SVR)?

A standard variable rate, which is sometimes referred to as an SVR for short, is in guide interest rate at which banks are prepared to lend to their mortgage customers. Banks often vary this interest rate in line with the Bank of England’s Base rate, as shown by the Halifax and the Cheltenham and Gloucester, in order to keep their lending rates competitive. The standard variable rate is the rate to which 2 and 3 year fixed rates mortgage deals and introductory mortgage rate offers will often automatically switch to when they come to the end of their validity period.

What is the Bank of England?

The Bank of England is the equivalent of the central bank for the United Kingdom. As well as setting the base rate of interest and printing the UK bank notes, the Bank of England also has the responsibility of setting financial and economic policy in order to maintain a sound fiscal and economic stability for the benefit of the UK economy.