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Mortgage reduction after rate cut delayed for many until next month

Published 05/08/2016

The Bank of England cut interest rates on Thursday.
The Bank of England cut interest rates on Thursday.

Many home owners will have to wait until September to see their mortgage repayments reduced as lenders decide how to pass on the cut in interest rates.

While some will feel the benefits of the rate cut immediately, many others will not see the rate on their loan reduced until next month, following the decision to cut the Bank of England base rate to 0.25%.

Lloyds Banking Group, HSBC, Santander and Barclays are among the lenders which will not be making at least some of their mortgage reductions until September.

Rachel Springall, a finance expert at website Moneyfacts, said borrowers may feel frustrated that their payments are not being reduced immediately.

She said: "Many people are still going to have another month of their normal repayments as a lot of the cuts are coming in in September.

"Some people have their mortgage payments taken out on the first working day of the month and some have them at the end. They are going to have to wait until September to see the difference."

Ms Springall said the gap of time before some mortgage customers see their repayments cut may come down to the small print in their particular deal.

HSBC, which has already passed on the cut to tracker mortgage holders but will not pass on the decrease to standard variable rate (SVR) customers until September 1, said its terms and conditions mean the cut for SVR customers is scheduled to start from the beginning of the month.

The extent to which mortgage customers see a cut in their repayments will depend on what type of deal they are on. According to industry figures, more than 1.5 million mortgages are base rate trackers that directly move in line with the base rate, although some deals have a "collar" below which the rate cannot fall.

A base rate cut does not automatically feed through on a like-for-like basis to all variable mortgage rates.

SVR mortgages do not necessarily move in line with the base rate - so customers may need to wait to see how their lender reacts.

For example, Lloyds Bank's SVR rate does track the base rate and it will in line with it, but Lloyds' sister bank Halifax's SVR does not operate in the same way and Halifax's rate is still under review.

More than 2.2 million loans across the UK are SVR deals, according to figures from the Council of Mortgage Lenders (CML).

Ms Springall said SVRs often have higher rates than other mortgages generally. Home owners tend to end up on an SVR when their introductory deal comes to an end.

But some people with a lack of equity in their home may find it hard to move off their SVR deal to another mortgage.

Bank of England Governor Mark Carney has said banks have "no excuse not to pass on this cut", thanks to the Bank's package of measures .

Around half of existing mortgages are fixed rates - and borrowers with these deals will not feel the immediate effect of the rate cut.

But David Hollingworth, a spokesman for brokers London and Country, said people on fixed deals should not feel disheartened, as the chances are they are already on a good rate, following the spate of mortgage price wars which have pushed fixed rates to record lows.

Mr Hollingworth pointed out that a two-year fixed-rate from HSBC, currently available at 0.99%, is lower than a two-year tracker from Nationwide Building Society at 1.19%.

With expectations that more rate reductions are on the cards, Mr Hollingworth said he expects to see more borrowers considering tracker deals, although longer-term fixed-rates, which give people certainty, "will still appeal".

He said: "This could be a trigger point for people to review their deal and realise how much they could be saving."

A spokesman for the CML said: " Average borrowing cost has fallen from 3.8% to 2.9% since the last bank rate cut seven years ago.

"This shows that, while an important factor, the bank rate is not the only determinant when lenders decide their rates, which are currently at historic lows.

"There is a diverse and wide-ranging selection of mortgage products available in the market today that can have varying terms and conditions to suit borrowers' differing needs."

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