Interest rates have fallen to an all-time low of 1.5% - but not everyone is feeling the benefit. Many mortgage lenders have failed to pass on the cut to their borrowers - so are you missing out? And what action can you take to claw back your lost cash? We examine the market
Last week the Bank of England (BoE) cut its base rate - the interest rate at which it lends
money to other banks - to just 1.5%, the lowest level in its 315-year history. The idea behind
bringing this rate down was that interest rates in general will also fall, leaving more money in
the pockets of borrowers to spend, and so stimulate Britain’s flagging economy.
Anyone with a tracker rate mortgage should usually see an immediate benefit from the rate
cut. Tracker deals - as the name suggests - track an external rate. So if the nominated rate, often
the BoE's interest rate, goes down, the tracker mortgage rate follows. However, there’s a catch.
Many lenders, including Nationwide, Norwich and Peterborough and Halifax, have a 'floor' or
'collar' on their rates, below which the rate will not fall.
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Will you be getting a better deal?
When the BoE cut its rates last month, Nationwide, the country’s biggest building
society lender, said it would not impose its collar, which stands at 2.75%, and would pass the cut
on to savers. But this month it says it will not make a further reduction, in order to protect
savers, who also see their interest rates fall when loan rates come down.
If you have a fixed-rate loan - and half of all borrowers do - you won’t see a change in what
you pay, because your rate is fixed until the end of its term. However, when you come to
renegotiate your loan you may find that a new deal is cheaper than the one you are on.
If you are on a variable rate - either your lender’s standard variable rate (SVR) or one,
such as a discounted rate, that is tied to the lender’s SVR - you should also see your rate fall,
as SVRs are at new lows. Even so, you may find that your rate does not fall as much as you had
hoped.
Pressure from the Government on banks to cut lending rates, and at the same time increase the capital that they hold to maintain stability and prevent another crisis like that at Northern Rock, leaves lenders with little room to manoeuvre in the interests of savers. The only way they can do this is to restrict falls in their variable rates, which are set at their discretion.
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