Over half a million lucky Halifax mortgage customers will benefit from today's base rate cut.
Halifax, Britain's biggest mortgage lender, today announced that it won't apply its controversial collar on its tracker mortgage deals. This means tracker borrowers will enjoy lower mortgage repayments following the Bank of England's decision today to cut the base rate to 2%.
The mortgage interest rate borrowers pay on trackers normally rises and falls in line with changes to the base rate. But some lenders have put a `collar' on their tracker deals so that once the base rate has fallen below a certain level they will stop passing on further rate cuts to borrowers.
Unfair terms
In a speech at the Council of Mortgage Lenders annual conference this week, Jon Pain of The Financial Services Authority (FSA) said that collars could be a legitimate part of a mortgage deal. But the condition had to be made clear in the mortgage Key Features Illustration (KFI) and offer document. Lenders who exclude details of the collar from the KFI run the risk of breaching the FSA's disclosure requirements, and could have a contract term which is unfair to borrowers and unenforceable.
Halifax came under fire in an article in The Times yesterday which claimed the lender had removed the details of its collar from the KFI in 2005. The condition was then rewritten into the small print of a larger mortgage document, following complaints from the FSA that the KFI documentation was too complicated.
The small print says Halifax reserves the right to review its tracker margins and apply a collar if the base rate falls below 3%. However, following pressure from the FSA, the lender has made the decision that it will pass on the full benefit of any future base rate reductions, including the 1% cut which took place today.
Great news for tracker borrowers
This is great news for over 500,000 Halifax tracker borrowers who will see their mortgage rates fall by 1%. For borrowers with a £150,000 mortgage, this could mean paying around £85 less every month*. Borrowers with other mortgage brands in the HBOS group -- including Bank of Scotland, Birmingham Midshires, The Mortgage Business and Intelligent Finance -- will also benefit from today's base rate cut and any future reductions.
While, Halifax has been quick to announce it will pass on the rate cut to its tracker borrowers, it is yet to say whether its standard variable rate (SVR) will be reduced too.
The SVR is normally the rate borrowers are moved onto automatically once their special introductory rate deals have ended. SVRs usually move in line with the base rate, so when the base rate is falling they should become cheaper. That said, lenders are under no obligation to apply any rate reductions to the SVR. Halifax's SVR currently stands at a rate of 5%.
Halifax is the first of the big UK mortgage lenders to revoke its collar. Nationwide's collar won't kick in unless the base rate falls to 1% while HSBC says it reserves the right to stop passing on base rate cuts following a `material change' in the mortgage market. But let's hope, if it comes down to it, other lenders have an appetite for playing fair too.
*Based on a mortgage loan of £150,000 over 25 years, and comparing an original rate of 4.99% with a reduced rate of 3.99%.
> After this article was published, Nationwide announced that it would not enforce the 2.75% floor on its tracker products. This means that all Nationwide tracker mortgage customers will benefit in full from the 1% cut in the base rate.
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