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Following last week’s 1.5% cut in bank base rate to 3%, homebuyers are hoping for a big reduction in their mortgage costs. But will it happen?
Halifax immediately announced a full 1.5% cut in its SVR to 5% while RBS, which owns NatWest, made a similar cut in its SVR to 5.19%. Both rates will be applied from December 1. Nationwide also announced it would pass on the full 1.5% cut, taking its SVR to 4.69%.
How long SVRs will remain at this level remains to be seen because these are now ‘best buy’ rates and lenders could be swamped with applications – not least because SVR mortgages traditionally have no early exit penalties and are a very flexible option.
‘Most large lenders won’t accept applications for standard variable rate mortgages any more,’ says Ray Boulger of mortgage broker John Charcol.
Only time will tell how large the reduction may be in fixed and tracker mortgages but it is unlikely to be the full 1.5%, and there are a number of factors that indicate that even if bank base rate falls to 2% homebuyers will still be paying at least 3% to 4% for their money.
Expect a collar
With banks warning the Chancellor that there is a limit to the absolute level of interest rates, it seems likely that all new trackers – when they eventually come back to the market – will have a ‘collar’, or absolute minimum rate, of 3%.
Halifax already has a 3% collar in place on some existing trackers and Nationwide has a collar of 2.75% on many of its tracker products. A minimum rate is likely to become the norm.