Fridays interest rate reduction should have an impact on most mortgage holders. The Bank of England cut interest rates by a further 1 per cent, which will bring monthly repayments down for those borrowers with tracker mortgages . However, many lenders have not reduced their rates as of yet.

Many borrowers however will not feel the benefit of the rate cuts as those on tracker mortgages will see major banks applying a ‘collar’ to their rates.  This is known as a minimum pay rate which is a part of your mortgage small print and prevents borrowers rates dropping below a certain amount.

Many tracker mortgage collars are initiated at 3 per cent. Some mortgage market experts indicate that as many as 600,000 tracker customers will not benefit from the rate cut at all.

Many lenders have already reduced their standard variable rates following previous rate cuts.  It is not yet known whether they will again lower the SVR to meet the current base rate.

The Bank of England’s Monetary Policy Committee (MPC) has cut interest rates by 1% to 2%, their lowest level since 1951.The reduction follows a huge 1.5% cut last month and a 0.5% decrease in October in an emergency move co-ordinated with other central banks.

Adrian Coles, director-general of the Building Societies Association, said: “Homeowners will welcome the decision to cut the Bank Base Rate to 2%. However, not all mortgage borrowers will find the fall mirrored by their lender - building societies have to balance the interests of borrowers and savers. Although low interest rates are good news for borrowers, they are not so good for savers.”

Karen Barrett, marketing director at Impartial, said: “The cut will certainly be good news for those currently on tracker mortgage deals as they will probably see their repayments continue to decrease.

“We anticipate that pressure from the Government will also result in lenders passing on this rate cut so those mortgage holders on a standard variable rate mortgage.

“For those looking to buy or remortgage – especially all those on fixed-rate deals who won’t have seen the benefit of recent rate cuts – it may become harder to find competitive deals as lenders tighten their lending criteria and limit their attractive tracker and fixed-rate deals as LIBOR rates fail to keep pace with the Bank Base Rate.”

More than four million home owners on tracker mortgages are unlikely to benefit from there full cut because of so-called collars – whereby lenders no longer have to pass on interest rate reductions once the Bank of England base rate falls below a certain level.Around five million existing mortgage borrowers are on fixed-rate deals and the remaining 150m are borrowers on lenders’ standard variable rates. Yet many lenders have been slow to react to the recent rate cuts.

More than 75pc of mortgage lenders have already failed to pass the 1.5pc cut on in full to their standard variable rate (SVR) according to research by Moneyfacts.co.uk before today’s announcement by the Bank of England.

But some borrowers will benefit. Lloyds TSB has announced that it will cut its SVR to 4pc from January, while Halifax has said its SVR is under review.

The smallest cut in response to the total combined 2pc cut in October and November was 0.3pc from Scarborough Building Society and there is now an unprecedented spread of 2.25pc between the lowest and highest Standard Variable Rate (SVR), with Nationwide being lowest at 4.69pc and Scarborough (soon to be taken over by Skipton) highest at 6.94pc.

Ray Boulger at John Charcol borrowers may have received the news of another significant rate cut with hope, I expect very few lenders to pass on the whole of this month’s cut, with most reducing their SVRs by between just 0.25pc and 0.5pc. Some who were coerced by The Government into passing on all of last month’s 1.5pc cut against their better commercial judgement may choose to be parsimonious this time, unless there is further Government browbeating.”

Many lenders which withdrew tracker mortgages straight after the last cut have not replaced them and are unlikely to do so in the near future, particularly if base rate is cut again.

Last night, Cheltenham & Gloucester withdrew their tracker mortgage products ahead of the base rate decision.

A spokesman said: “Until we know the Bank of England’s base rate decision we are temporarily withdrawing all our Tracker products from the market – with a view to relaunching early next week once we know the impact of the base rate decision on wholesale funding costs.”

Melanie Bien at Savills Private Finance, said: “The cut was expected and shows just how concerned the Bank is about the economy and undershooting the inflation target. However, not all borrowers will benefit. Lloyds is cutting its SVR by the full amount and some lenders will follow but not all, particularly the smaller building societies who can’t afford to.

“There will also be some concern for savers and protecting their interests. While it will bring relief to borrowers on trackers, it won’t suddenly encourage lenders to start lending again, nor ease criteria on deals.”

Kara Gammell - Telegraph

Struggling to get a mortgage?

Its a sad fact that in todays climate, if you’ve got less than 10 per cent equity in your home, then it’s now very hard to find anyone to lend to you. Nationwide have recently stopped lending to anyone other than existing customers with less than 15 per cent equity and many other lenders have withdrawn high loan-to-value (LTV) deals as well.

When the time comes to remortgage your home and you can’t find anyone to give you a new deal,  you’ll find yourself paying your lender’s Standard Variable Rate. This is usually much higher than the Bank of England rate and can mean a huge increase in your monthly repayments.

Several of the largest banks however reduced their Standard Variable Rates by the full 1.5 percentage points yesterday – and many more are expected to follow suit next week – which means that switching to the Standard Variable Rate may now not be nearly as painful as it once was.

Many lenders may even find that the SVR may actually be less than the rate they are currently paying. For example, as of 1 December, Lloyds and Cheltenham & Gloucester will have an SVR of just 5 per cent.

The flipside of being on a bank’s SVR, however, is that your mortgage rate is controlled by your lender and can change whenever the bank wants it to. So if there are future bank rate cuts, there’s no guarantee your rate will fall, although it’s fairly likely that you’ll pay more if the bank rate rises.

Currently less than 5 per cent of the country is paying the SVR, but Hollingworth believes this is likely to increase as more and more people find themselves with little or no equity in their homes and unable to remortgage.

With SVRs at much lower levels, it may make sense for people to avoid remortgaging where possible, even if they have equity in their home. Remortgaging costs money – legal fees, valuation fees, and hefty arrangement fees. If you can stay with your current lender, you can avoid all of those charges. If you are thinking of remortgaging, take the fees into account when calculating whether your new deal works out any cheaper over two or three years.

Help…we’re buying a new house

If you’re buying a property, and are looking for a new mortgage, you’ll find that there’s not much on offer at the moment. This week, almost every lender withdrew all of their new tracker mortgages, as they waited to see what the Bank of England would do with interest rates. Meanwhile, there are very few discount rates available either.

If you’re looking for the good deal, the best thing to do is to wait for a few days. Lenders are expected to begin offering tracker mortgage products next week, although it’s not clear how far they’ll be priced above the bank rate. Tracker rates are still the throught to be the best option if you can get them, as almost all economists are predicting that the next rate in interest rates will be down – maybe even as soon as next month. The most pessimistic economists are predicting that rates may go down to 0 per cent.

If you do opt for a tracker, however, watch out for whether your deal has a “collar” – a rate below which your mortgage cannot fall. Nationwide and Skipton Building Societies are amongst a handful of lenders who already have collars on all of their tracker mortgages. In the case of Skipton, its collar is 3 per cent, which means that now the base rate has hit 3 per cent, its customers will see no further reduction if the bank rate is reduced further.

David Black, the head of banking at consultants Defaqto, believes that once banks begin to reissue trackers next week, collars will become even more prevalent. “When the new ranges of trackers get launched, you can expect far more to have a collar,” says Black. “I expect you’re also going to see bigger margins [between the mortgage rate and bank rate] as well.”

At the moment, one of the only trackers on the market is being offered by HSBC, at 0.99 per cent above the Bank of England rate. However, you’ll need a deposit of 40 per cent to qualify. If your finances wont stretch that far, Earl Shilton Building Society has a product which charges bank rate plus 1.75 percentage points – and you only need a 20 per cent deposit to qualify.

If you can’t wait to get a new mortgage – or you prefer the stability of knowing what your monthly payments will be – there are still plenty of fixed-rate products on offer. In light of expeced rate cuts in the future, fixed rates look particularly poor in value.

Woolwich, for example, has a two-year fixed-rate deal at 4.99 per cent, which is almost 2 percentage points above the current bank rate. If you can, hang on for a few weeks and there should be some much more competitive fixed-rate products available on the market.

I’m on a fixed-rate deal

Unfortunately, if you’ve got a fixed-rate deal at the moment, then you won’t see any benefits from this week’s rate cut. However, the chances are that you’ll have to think about remortgaging within the next couple of years, and, with a bit of luck, mortgage rates should be even lower than they are now by the time you start to shop around.

Even if your current deal is about to end, it’s probably worth hanging on a few weeks to see what deals emerge now that the Bank of England rate has come down. Significantly, Libor – the rate at which banks lend to each other, which is much more important when it comes to pricing mortgages – also fell significantly yesterday, increasing the likelihood that the banks will bring out some much cheaper deals over the coming days.

Melanie Bien, director of independent mortgage broker Savills Private Finance, says: “The significant fall in three-month Libor is more important in terms of new borrowing rates than the drop in base rate. Lenders have pulled their trackers and have been waiting to see what happens with inter-bank funding – they will now be under huge pressure to pass most of it on.”

It’s now all but impossible to get a mortgage if you have less than 5 per cent equity in your property, so keep an eye on property prices in your area, and if you think you’re in danger of hitting negative equity, try and make some overpayments to your mortgage to keep yourself in the black.

I’ve got a tracker/ discount mortgage

If you’re one of the lucky people to have a tracker mortgage, you should see your monthly repayments drop substantially next month. For example, if you have a £200,000 loan with 20 years left to run, your payments should fall by as much as £180 – depending on how much more you were paying above the Bank of England interest rate.

Those with discount mortgages should benefit as well. Discount deals are pegged to a bank’s standard variable rate (SVR), and many of the major lenders have begun to cut their Standard Variable Rates over the last two days. Others are likely to follow early next week.

However, David Hollingworth of London & Country mortgages, the fee-free broker, says that while it may be tempting to pocket any saving you make if you have a tracker or discount deal, it makes sense to consider using some or all of this money to pay down your loan quicker.

As house prices continue to fall, the amount of equity in people’s properties is diminishing. According to the Nationwide Building Society, house prices have fallen by almost 15 per cent over the past year, which means that if you bought your home for £200,000 last autumn, it may now only be worth around £170,000 now.

So, if you had a deposit of 25 per cent of your purchase price £50,000, you would have started off with 25 per cent equity in your home but will now have less than 15 per cent. You may find that once you come to the end of your current mortgage deal and have to remortgage, this becomes a problem, as few lenders at the moment are willing to lend more than 85 per cent of a property’s value.

Where possible, make overpayments on your mortgage to ensure you stay in the black, Hollingworth says that families are more likely to be able to get a mortgage next time around.

The Bank of England shocked the country today by slashing 1.5 percentage points off interest rates today - the largest cut it has made since it was granted independence in 1997 - as it tries to ward off a deep recession.

The Bank’s monetary policy committee cut to 3% from 4.5%, the lowest since the early 1950s as it responded to huge pressure from industry and unions to make a deep cut in borrowing costs.

The Building Societies Association immediately began to prepare the ground for the deep cut in the cost of borrowing not to be passed on in full to customers and would-be homebuyers.

Adrian Coles, director general of the BSA, said: “This reduction in the bank rate will provide some support to the housing market and especially borrowers on tracker rates. However, borrowers looking for new fixed rate deals or homeowners with mortgages linked to money market rates will not necessarily find their mortgage rate decreasing”.

Cole said there were a number of reasons why the rate cut may not be passed on, including the need for building societies to fund the cost of the bail-out of the Bradford & Bingley and Icelandic banks, the need to maintain profits, the need to keep savings rates high and competition in the martgage market.

Andy Bond, chief executive of the Asda supermarket chain, said lenders had a responsibility to pass the rate cut on in full: “It is essential that banks and building societies pass on this saving to their customers. Everyone has to play their part and financial institutions are not exempt.”

Cheltenham & Gloucester, the mortgage arm of Lloyds TSB, was the first lender to declare its intentions. The lender, which will soon be 43% owned by the government, is passing on the rate cut in full - despite comments by chief executive Eric Daniels earlier this week that suggested they may not do so.

HSBC, Nationwide, Barclays and Royal Bank of Scotland said they were reviewing the situation. There was no immediate comment from HBoS, the country’s biggest mortgage lender, but together with RBS, it will be under huge pressure to pass on the full effect of the rate cut.

Today’s move adds to the emergency half-point cut it made last month in concert with other central banks around the world in the midst of last month’s banking system turmoil.

Pressure had been mounting on the MPC all week from a run of poor figures from the manufacturing, construction and services sectors which showed one of the sharpest overall declines on record, suggesting the economy is weakening at a pace not seen since the recession of the early 1990s.

And earlier today the Halifax reported that house prices slumped 2.2% last month from September, the sharpest drop since May, and one which took the annual rate of change down to -15%, the worst since the series began in 1983 and lower than at any time during the house price crash of the early 1990s.

“Housing market conditions remain challenging in the face of the significant pressures on householders’ incomes and the reduction in the availability of mortgage finance since last summer,” said Halifax chief economist Martin Ellis.

“But housing affordability is improving significantly. The house price to average earnings ratio has fallen below 5.0 for the first time for four-and-a-half years. We expect a further improvement in the ratio over the coming months.”

Its announcement was followed by official data showing new construction orders tumbled by 19% in the three months to September from a year earlier, as orders for new houses more than halved. And the Society of Motor Manufacturers and Traders said new car sales were down a hefty 23% in the year to October, suggesting consumer and fleet spending is falling sharply.

“Sharply deteriorating private car sales is a further clear sign that consumers are now sharply cutting back on their spending,” said Howard Archer, economist at IHS Global Insight. “While consumers are increasingly cutting back on their spending out of necessity, but it is also evident that many consumers are also retrenching out of choice, reflecting their heightened concerns about the economy and jobs.”

Marks & Spencer on Tuesday reported its profits had slumped by nearly half in the six months to September as shoppers stopped buying expensive food treats and reined back their spending on clothing and homeware.

Gordon Brown yesterday urged banks to pass the rate cuts on to their mortgage holders amid reports that some banks were not planning to do so. Several banks have announced this week that they are raising their tracker margins over base rate for new customers, although existing customers with trackers will benefit from the rate cut while savers will undoubtedly see their savings rates cut. The cut should save £135 on a typical £150,000 mortgage.

Few in the City expect it to stop here - most are expecting rates to be cut to 2% or less in the coming months. Consultancy Capital Economics is pencilling in rates at just 1% by the end of next year.

Howard Archer, chief economist of Global Insight, said: “This has gone further than we thought, but it is fairly justifiable and shows just how worried the Bank of England is about the economy and the possibility of a deep and long lasting recession. It also reflects concerns about the real prospect of deflation.”