Page last updated at 13:05 GMT, Wednesday, 8 October 2008 14:05 UK

Mortgage rates cut on Bank news

For sale signs
Mortgage costs have been fluctuating in recent months

Mortgage providers have been dropping the cost of their home loans following the emergency cut in UK interest rates.

Halifax said it will be reducing its standard variable rate (SVR) from 7% to 6.5% from 1 November.

Lloyds TSB, which also lends under the Cheltenham & Gloucester brand, said it would cut its SVR by half a percentage point to 6.5% on the same date.

Woolwich will also cut its SVR, but experts say that house prices will fall despite the respite for homeowners.

First Direct, part of HSBC, Royal Bank of Scotland and NatWest all later announced they were going to cut their SVR by half a percentage point.

"All this decisive action augurs well for an improving market situation looking ahead, even though no one is pretending the tough times are over yet," said Michael Coogan, director general of the Council of Mortgage Lenders (CML).

About 7% of mortgage holders have a SVR mortgage.

Cheaper deals

In a co-ordinated move with five other central banks, the Bank of England cut UK interest rates by half a percentage point to 4.5% on Wednesday.

This should help to start the process of rebuilding confidence but we suspect that more action will be necessary over the coming months
Simon Rubinsohn, RICS

The Bank rate cut will offer relief for a third of the 11.7 million UK households with a mortgage, as they are on existing tracker mortgages.

Louise Cuming, head of mortgages at, estimated that a family with a typical 150,000 mortgage will be more than 40 a month better off, a saving of almost 500 a year.

But rates for savers are likely to be cut by some providers as a result of the latest news.

National Savings and Investments (NS&I) said it was cutting the returns paid on its ISA following the fall in the official cost of borrowing.

Government-backed NS&I said interest paid on its Direct ISA was being reduced from 5.3% to 4.8%.


Action taken on Wednesday, including the rescue plans for the banks, was likely to arrest the decline in the availability of mortgages, according to mortgage broker Ray Boulger.

The cut in the Bank rate came after falls in recent days in Libor - the rate at which banks lend to each other and key to mortgage costs.

But before the cut in interest rates, the cost of new deals was significantly higher than the last time the Bank rate was at 4.5% in July 2006, said David Black, principal consultant of banking for Defaqto.

"The average five-year base rate tracker mortgage is now 1.07% higher relative to the bank base rate than it was back in July 2006," he said, describing the cost as "sobering".

Adrian Coles, director general of the Building Societies Association, said that borrowers should not rest on their laurels.

"Although today's news will clearly help those with repayment difficulties, borrowers who still think they might encounter problems repaying their mortgage should get in touch with their lender as soon as possible," he said.

Unemployment threat

Mortgage payment problems are expected to become more commonplace if homeowners start to lose their jobs.

And the Royal Institution of Chartered Surveyors (RICS) has forecast that UK unemployment to rise above two million.

"The dramatic response from the authorities is an appropriate response to the chaos in financial markets over the past few weeks and the global economy's slide into recession," said RICS chief economist Simon Rubinsohn.

"This should help to start the process of rebuilding confidence but we suspect that more action will be necessary over the coming months."

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