Frozen rate leaves homeowners with mortgages disappointed

The Bank of England’s decision to keep rates the same at 5.5% has proven to be a big disappointment to homeowners with mortgages. There had been a mild expectation within the industry that rates might come down in the new year, bringing a welcome relief to homeowners who have felt a financial squeeze with all the interest rises last year.

This disappointing news comes hot on the heels of the realisation that some of the bigger lenders have still not passed on the December rate cut to those customers with variable rate mortgages.

Those customers whose mortgages track the Bank of England’s base rate will have benefited from last month’s cut almost instantly, however those who have a lenders own standard variable rate may have to wait in order to feel the result of the reduction.

Gordon Brown has stressed this week that the lenders have a "duty" to pass on this interest rate cut, however some of the larger companies are not paying any heed. Alliance and Leicester, Egg, Northern Rock and Skipton building society have so far refused to pass the full cut on to its borrowers.

The Council of Mortgage Lenders claims that the majority of customers are on fixed or tracker rate products where the lender’s decision about whether to change variable rates is irrelevant.

It also states that the lenders’ rate-setting policies are not solely based on the level of the bank base rate, but other more complicated factors are also taken into consideration. Therefore, one should never assume that a base rate reduction automatically results in standard variable rates or discounted rates being reduced. Those tracker mortgages whose rates specifically track the bank rate will follow suit, whereas fixed rates are calculated by the market cost of fixed-rate funding and NOT the bank rate.

DCM Money Solutions’ M.D. John Baird comments that  approximately 1million customers are approaching the end of their agreed term fixed rate mortgage. He is concerned that this latest decision to keep rates the same will not assist these people in negotiating new deals, coupled with banks ever-tightening lending criteria.