Tens of thousands of borrowers will be paying nothing for their mortgage once this week’s base rate cut takes effect, widening the gulf in costs between homeowners with fixed and tracker loans.
Borrowers who took out a fixed mortgage deal last summer could be locked into a rate of 6 or 6.5 per cent for another 18 months. Meanwhile, those who managed to secure a cheap tracker rate a year or so ago may have seen their mortgage interest drop below zero per cent.
Halifax, Cheltenham & Gloucester and Co-operative Bank were among the lenders offering tracker rates half a point or more below the base rate at the end of 2007.
Homeowners on tracker deals have seen their mortgage rate drop by 4.5 percentage points in the past six months, reducing monthly interest payments by around 90 per cent, according to John Charcol, the mortgage broker.
Borrowers on many of the biggest lenders’ standard variable rates, and on mortgages priced off these SVRs, will also feel the full benefit of the latest cut. Halifax, Nationwide and Cheltenham & Gloucester, as well as Skipton Building Society, have passed on the half- point cut. Abbey said its SVR would come down by 0.45 percentage points.
But the lower base rate will bring more misery for savers, who are likely to see already paltry returns fall further. Many accounts are now paying close to nothing. The average rate on instant access savings has dropped to just 0.83 per cent, according to Moneyfacts.co.uk, the financial information website. Some accounts are paying as little as 0.01 per cent, which equates to just £1 interest per year for each £10,000 saved, or even no return at all.
The Building Societies Association described the rate cut as “a kick in the teeth for savers”. However, some banks and societies said they would look to “protect” accountholders by limiting interest reductions.
Barclays said it would leave its savings rates unchanged, while RBS/NatWest said reductions to accounts would average 0.2 per cent – though it will not cut its mortgage SVR.
Experts predicted that savings rates across the market would fall by an average of 0.2 to 0.25 per cent in coming weeks. Savers can still lock into fixed-rate bonds paying up to about 4 per cent, although these rates could be withdrawn within days.
