Is Your Mortgage Going To Get Cheaper?

Which mortgage lenders have passed on the interest rate cut to borrowers - and which haven't? The Fool decides to name and shame!

It's been a week since the Bank of England cut its base rate by a half a percentage point. This should mean good news for mortgage borrowers on variable rates. After all, that's the key advantage of choosing a variable rate over a fixed rate - so that your monthly payments come down when the base rate is cut.

But not all lenders passed on the full 0.5% cut. Here's a list of the biggest 10 lenders and their Standard Variable Rates (SVRs) -those that have not passed on the full 0.5% cut are highlighted in italics:

*Effective from 3rd November 2008.

As you can see, while Nationwide and HSBC have failed to pass on the full 0.5% cut, their Standard Variable Rates remain among the lowest on the market, at 6.19% and 6.25% respectively. That's cheaper than many introductory mortgage deals!

A far worse offender, in my opinion, is nationalised lender Northern Rock. I think it is shameful that, again, the bank has not passed on the full base rate cut, meaning its SVR is among the highest in the market at a whopping 2.84% above base rate.

This uncompetitive rate is deliberately intended to drive Rock borrowers to remortgage as soon as they can - but what about Rock customers who took out those awful 125% mortgages? They cannot remortgage easily, and yet are likely to be among those who can least afford to pay a high mortgage rate.

I know many Fools do not feel much sympathy for these borrowers. But repossessing the homes of these borrowers because they cannot manage to meet the increase in their payments will not do either the Government or the borrowers much good.

Of course, I accept that the top priority for The Rock at this time is to repay the Government's loan. But I find it hypocritical that the Government should ask other lenders to pass on full cuts in the SVR and to support borrowers who are struggling with their mortgage payments - and then behave like this.

It is interesting to note, too, that nationalised bank Bradford & Bingley has yet to make a decision about its Standard Variable Rate (but, by comparison to other lenders, very few borrowers are on this rate).

Will your mortgage payments get cheaper?

It all depends on which lender you're with and what type of deal you're on.

• If you're on a fixed rate, your payments will stay exactly the same.
• If you're on a tracker, your mortgage rate should fall by 0.5% this month.
• If you're on a discount rate, you must look carefully at the table above. A discount rate is linked to the lender's Standard Variable Rate (SVR) - so when the discount rate will only fall if the lender's SVR has fallen.
• If you've come to the end of a tracker, fixed rate or discount deal and have not remortgaged, it's likely that you are currently paying your lender's SVR. It is worth checking whether you can find a better deal by remortgaging if this is the case.

Discounts vs. Trackers

To me, the fact that five out of the top 10 biggest lenders have failed to pass on the full base rate cut merely demonstrates, once again, the advantages of a tracker over a discount rate.

While both are variable rates, with a tracker, base rate cuts are guaranteed to be passed on in full immediately.

With a discount rate linked to the SVR, there is no such guarantee. The lender controls the SVR and can do as it wishes. And while convention dictates that when there is a base rate cut, lenders follow suit and cut their SVRs to reflect the cheaper cost of borrowing, this is by no means guaranteed - even in normal, pre-credit crunch times. Today, when LIBOR (the inter-bank lending rate) stands at 6.2% it is even less likely to happen.

So if you're ever torn between a cheap discount mortgage rate and a slightly more expensive tracker, my advice would always be to go for the tracker. At least it's transparent, and you know always where you stand.

But what do you think? Would anyone like to join me in calling for The Rock to reduce its SVR?

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