Around half (50%) of all mortgage borrowers have a fixed-rate loan, so they will not benefit from reductions in the base rate. Borrowers that do benefit include those with tracker mortgages (which track the base rate up and down) and variable-rate mortgages, most of which are linked to banks’ standard variable rates.
Borrowers with a £100,000 interest-only home loan will see their yearly mortgage bill drop by £1,000, or over £83 a month. For repayment mortgages, the calculation is more complicated, because the saving depends on the starting rate and the length of the loan. For example, a rate cut from 4% to 3% on a £100,000 mortgage will save £658 a year (almost £55 a month) on a 25-year repayment mortgage. Use our mortgage calculator to work out how much you could save.
Then again, these calculations assume that mortgage lenders will pass on the full percentage-point cut. Given the horrendous state of our banks, I expect several to boost their profits by only passing on a proportion of the fall. In particular, I’ll be watching big banks Barclays and HSBC, both of which have avoided state bailouts and failed to pass on the previous 1.5% cut in full.
On the other hand, I expect the nationalised and part-nationalised banks (Bradford & Bingley, HBOS/Lloyds TSB, Northern Rock and Royal Bank of Scotland) to pass on the rate cut in full. After all, having had tens of billions of taxpayers’ cash, they now have the Government as a major or 100% shareholder!
source : www.fool.co.uk/news
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