The Monetary Policy Committee has announced a one per cent cut in base rate today, taking the new level to two per cent, the lowest it has been since for more than 50 years (1951).
But not all existing borrowers will benefit, and the move will have a limited impact on the levels of new lending.
Trackers & Collars
The most obvious beneficiaries are borrowers on tracker mortgages, though here there is a sting in the tale: some deals have 'collars'. This means the lender will cut rates to a certain level in line with Base Rate reductions but will not go below this limit.
Halifax, however, have promised to pass on the full interest rate cut on tracker mortgages, a move that will also benefit customers at HBOS's other brands, such as Bank of Scotland, Birmingham Midshires, The Mortgage Business and Intelligent Finance.
Lloyds TSB and C&G have also promised to pass on today's base interest rate cut in full to existing variable and tracker customers.
Abbey's variable rate trackers will also fall by the one per cent, including all flexible deals. The rate change will take effect from the start of January.
New Lending
But if some existing customers will benefit, the cut will have less impact on new lending. Louise Cuming, head of mortgages at moneysupermarket.com, explains:
"It's not good news for everyone though, and people looking for a new deal will be sadly disappointed.
"Lenders are facing immense Government pressure to pass on any cuts to existing customers but they can't afford to play Santa for everyone, and new customers will see the best tracker and SVR deals disappearing before their eyes."
Alliance & Leicester have already announced that they will be temporarily withdrawing their Tracker range from close of business today.
Abbey have also withdrawn their variable rate mortgage deals, and will be temporarily removing trackers from close of business this evening. They expect to re-launch a new range of mortgages next week.
More positively, from tomorrow Lloyds TSB and C&G will reduce rates on fixed rate mortgages, with rates starting from 3.89 per cent.
The lender is also introducing a new range of ten year fixed rate products, with rates starting at 4.99 per cent for 60 per cent LTV.
Limited Impact
Commenting on the cut, Ray Boulger of John Charcol, said: "While 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 0.25 per cent and 0.5 per cent.
"Some who were coerced by The Government into passing on all of last month's 1.5 per cent cut against their better commercial judgement may choose to be parsimonious this time, unless there is further Government browbeating.
"This will be the first time a significant number of borrowers on a tracker mortgage will feel the impact of a collar. I estimate that out of about 3.9m borrowers with a tracker mortgage 500,000 - 600,000 will not see the full benefit of this cut, and some will see no benefit.
"Despite the cost of fixed rate mortgages falling further over the last month they still look expensive, especially as Bank Rate is very likely to fall further.
"Therefore trackers with a droplock option but no collar remain the ideal mortgage product in today's market, although borrowers needing in excess of 75 per cent loan to value (LTV) will find very little choice, and none above 80 per cent LTV. For those, you need to speak to an adviser to se what the best option for you is."
