Homeowners look set to benefit from the Bank of England’s surprise decision to cut interest rates today in the wake of the US terrorist strike.
The decision by the Bank of England’s Monetary Policy Committee (MPC) to cut rates by 0.25% will mean homeowners can expect to see repayments on a £60,000 mortgage drop by £9.12 per month.
If lenders pass on the full reduction, borrowers will see their monthly payments fall to £377.46 from £386.58.
Since the beginning of the year, rates have fallen from 6% to 4.75%, knocking more than £80 per month off the cost of an average mortgage.
Virgin One was quick to pass on the rate reduction to borrowers, cutting its variable mortgage rates by the full 0.25%.
The new rate for the One account is now at its lowest ever at 5.95%, and will be available to new and existing borrowers from 19 September.
Virgin One marketing manager Scott Mowbray said: “In light of the MPC announcement today, all Virgin One customers will be benefiting from a full and immediate cut in interest rates.
“Given the unfortunate circumstances surrounding the Bank’s decision, it is appropriate that we play our part in aiding consumer confidence.”
Britain’s biggest mortgage lender, HBOS, the group created as a result of the merger of Halifax and Bank of Scotland, said it was currently reviewing its mortgage rates.
Citibank NA said it was reducing its sterling base rate from 5% to 4.75% with immediate effect, but the group said it had not yet decided whether it would pass on the rate cut to its mortgage customers.
Abbey National said it would be cutting its standard variable mortgage rate by 0.1% from 21 September for new borrowers and from 1 November for existing borrowers.
The group said it had decided not to pass on the full rate cut to borrowers in a bid to protect savers.
The new rate, which has been reduced to 6.65% from 6.75%, is the lowest Abbey National has offered for 30 years.
Barclays later said it was reducing its base rate to 4.75%, although it was still reviewing its mortgage rate.
David Bitner, mortgage technical manager at the MarketPlace at Bradford & Bingley, predicted that most lenders would pass on the cut to borrowers.
“I think a lot of lenders have been caught by surprise, but I believe the majority of lenders will pass the full cut on.”
He said lenders were also likely to lower the interest rate on fixed rate mortgages, and now was a good time to change mortgages if your current mortgage did not have a redemption penalty. Bitner added that he thought it would be at least 12 months before interest rates went up again.
Cheltenham & Gloucester, Nationwide, HSBC, Egg, the Woolwich and Barclays all said they were reviewing their mortgage rates following the cut in interest rates. NatWest and Royal Bank of Scotland said they had both reduced their base rate to 4.75% but had not yet made a decision on whether to pass the cut on to their mortgage customers.
Internet bank Egg later said it would reduce its standard variable rate by 0.25% to 5.49%. A spokesman said: “It is clearly good news for homeowners.”
First Direct said that following the fall in interest rates it was passing on the full reduction to its borrowers, cutting its “smartmortgage” rate to 5.5% with immediate effect.
EGi News 18/09/01
