Mortgage hope as Bank of England cuts interest rates

Thursday, 06, Nov 2008 01:48

Hopes of a fall in mortgage rates are growing following today's surprise 1.5 per cent interest rate cut - but home buyers are being urged to wait for any cuts in the cost of borrowing on the high street.

A number of banks have already started to cut their mortgages standard variable rates - but the number of borrowers on these are slim.

The first major action from the banks could be tracker mortgages disappearing or being increased.

Kate Tucker at broker Mortgageforce said: "The surprise bank rate slashing will cause a lot of lenders to pull trackers, and you can bet the new tracker margins will be at least another one per cent higher."

Nationwide Building Society subsidiary the MortgageWorks has already pulled all tracker mortgages from the market with immediate effect.

Attention now turns to whether the London interbank offered rate (LIBOR) will drop - and allow fixed-rate mortgage deals to come down.

"The three month Libor rate is the real problem for banks as it only started to decline in the last month and has since dropped to 5.68 per cent - this is still 2.68 per cent higher than the base rate," said Louise Bond at uSwitch.

"The fact that this rate has remained high is a clear indication that banks are just as fearful of lending to each other in this climate as they are to consumers."

Those already on tracker mortgages should see their repayments drop - but this may be the last time their rates drop as many lenders have collars in place preventing falls beyond a set level.

"With some collars operating when Bank Rate falls below three per cent, the next cut in Bank rate will mean that some borrowers with tracker mortgages will not see the benefit of further cuts," Ray Boulger at mortgage advisor John Charcol.

"Indeed, a few borrowers with a tracker mortgage with some of the smaller building societies may not even get the full benefit from today's cut."