Tracker mortgages at 2007 rates despite 1.5% base rate cut

30 October 2008 / by Rachael Stiles
Tracker mortgage rates are at the same level they were in 2007, despite the Bank of England base rate being 1.25 per cent cut lower, research from has found.

The average rate on a tracker mortgage in October 2007 it was 6.23 per cent, and it is currently higher, at 6.27 per cent, even though the Bank of England has reduced interest rates by 1.25 per cent since then, with the base rate now standing at 4.5 per cent.

"Despite the best efforts of the Bank of England to bring borrowing costs down, lenders just aren't passing the cuts on to consumers, either on the mortgage front or on other aspects of finance including business." said Michelle Slade, analyst at

The Bank of England's Monetary Policy Committee is due to meet again next week and some analysts predict that they will cut rates even further, after a surprise half a percentage point cut for October, in order to resuscitate the money markets and get banks lending to each other again, while also easing the pressure on homeowners.

But Ms Slade wonders what affect further cuts will have on mortgage rates

when borrowers are currently in no better position than they were this time last year, in spite of affirmative action from the Bank of England.

Since the MPC cut rates earlier this month, many lenders have announced rate cuts on their tracker mortgages – which are designed to track the Bank of England base rate – but all the rate rises which have been implemented during the last 12 months as lending dried up have counteracted any good they might have done.

With mortgages at last year's rates, Ms Slade said that "it is hard to see what influence this and future MPC decisions will really have" when not all of them have honoured the previous rate reductions.

"Base rate used to be a major barometer when determining mortgage rates, but it could become an obsolete component of a mortgage if lenders do not pass cuts on." she added.

The collars that lenders put on their tracker mortgages, which determines the lowest that a rate will drop to, could be enforced by more lenders if the base rate keeps falling. Not all mortgage providers have them in place, and those that do have not had to implement them for some time, but more could introduce them if they foresee more rate cuts on the horizon.

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