No reprieve for mortgage customers even after base rate cut

Article source: Miles Brignall & Hilary Osborne -

No reprieve for mortgage customers even after base rate cut

The announcement by the Bank of England that it is to cut its base rate by 0.5 percent got many mortgage borrowers hoping that the cut would be passed on to them and help them in what is a out rightly desperate situation; this has not turned out to be the case. Some mortgage lenders have passed on the cut to their customers, with the Halifax Bank of Scotland, Barclays Bank Woolwich, Lloyds TSB and the Royal Bank of Scotland reducing their Standard Variable Rate by the same amount. In contrast, many mortgage lenders have gone ahead to increase the lending rates for their tracker mortgage products, a good example being Abbey, which has increased its tracker rates by 0.5 percent meaning that the interest rate remains the same as when the base rate was 5%.

Northern Rock, the nationalised bank, said that it would pass on just 0.15% of the cut to its customers; the Rock still has 660,000 mortgage customers despite its high rate. Northern Rock’s new standard variable rate will be 7.34% which is one of the highest rates available in the market today. For the Rock’s borrowers who qualify for the 7 year loyalty discount the SVR applicable for them will be 7.09%. Offering some of the highest interests rates in the market, Northern rock had succeeded in driving its customers away to other mortgage lenders; something that a spokesman with the bank confirms, saying that their main aim is to generate enough finances to pay back the Bank of England. So far, about 115,000 mortgage customers have left the bank. Many mortgage customers are trapped at Northern Rock having to contend with their extremely high rates and not being able to move because their loans are worth more than the current value of their homes.

Nationwide building society on the other hand has announced that it will be increasing the rate of the deals it will offer to new customers in addition to restricting its lending terms. Deals on tracker mortgage products will be 0.3% higher meaning that their new customers will not benefit from the base rate cut.

At the same time, Nationwide’s three year tracker deal customers will get an increase of 0.3%. Mortgage borrowers who are fortunate to have a deposit of 40% or more will see their rates rise from 0.64% to 0.94%; this will give them an introductory rate of 5.94 percent. The only available loan-to-value ratio of 10 percent from Nationwide is at a rate of 1.49%, up from 1.19%. the building society has reduced maximum lending on other deals to 85%. The last mortgage deal by Nationwide for first time mortgage customers with a deposit of less than 15% is a three year tracker home deal with an interest rate of 6.94%. Existing mortgage borrowers could also access the building society’s 90% loan to value mortgage deals.

House sales are at a record low with the lending rates soaring; some mortgage customers who are finishing their two year fixed rate deals will have to pay the society’s SVR which stands at 6.49% with the society not sure whether they will alter it.

If the banks and building societies pass on the rate cut wholly to their customers, it would save mortgage borrowers up to about £50 on monthly basis. However, with some banks and building societies increasing their rates, many others will be prompted to do the same so that they do not stand out as offering the best deals which will mean that they are likely to have an influx of applications.