Borrowers who chose to stay with their existing lender when their mortgage deal expired are set to reap the most benefit from the latest base rate fall.
Meanwhile people looking to take out a new mortgage deal could find there is little change in the rates lenders offer.
Halifax, Nationwide, Lloyds TSB, Barclays and Skipton Building Society reduced their standard variable rates (SVRs) within minutes of Thursday’s half point rate cut.
Customers who have reverted to their lender’s SVR at the end of a fixed or tracker deal could now be paying as little as 3 per cent interest on their mortgage.
Borrowers with tracker mortgages should also see an automatic drop in their interest rate. But beyond this, the rate cut is not expected to have much of an effect on the cost of mortgages, as it is unlikely to stimulate new lending.
Melanie Bien, director of Savills Private Finance, the independent mortgage broker, said the sharp drop in banks’ funding costs had already led to cheaper fixed rate mortgages. She felt it was unlikely that these would fall much lower as lenders did not need to be as competitive as they have in the past.
“Lenders are more concerned with improving margins and rebuilding their balance sheets than trying to offer the cheapest rate on the market,” she said.
Some commentators felt the rate cut was likely to do more harm to savers than it would bring benefit for borrowers.
“The rate cut is an assault on savers who will have seen their interest payments drop by 83 per cent since July 2007,” said Adrian Coles, director general of the Buildings Society Association.
Advisers believed a base rate of 1 per cent would result in unprecedented low returns on savings. Already almost 40 per cent of savings account pay 0.5 per cent or less, according to Moneyfacts.co.uk.
The lack of incentive to save could bring further problems for the mortgage market. Banks have become heavily reliant on deposits from savers as they have been unable to access the wholesale markets. If retail deposits dry up, they will have even less money to lend and so may find it more difficult to offer attractive mortgage rates.
Mr Coles said borrowers were more concerned about being accepted for a mortgage deal than affording repayments.
Mortgage rates for borrowers with decent sized deposits are significantly cheaper than they were a year ago.
HSBC on Thursday announced a new mortgage range including a two-year fixed rate of 2.99 per cent for borrowers with a deposit of at least 40 per cent. Woolwich will launch new deals today with two-year fixed rates from 4.39 per cent.
Many other lenders have fixed rates of around 3.5 to 4.5 per cent, and tracker rates starting from around 4 per cent.
Brokers said borrowers with deposits of 10 or even 15 per cent still faced a limited choice and were unlikely to see cheaper mortgage rates any time soon.
