The Bank of England has just slashed its base rate from 1% to an unprecedented 0.5% - its lowest rate in 315 years! As with the previous cuts, this news will bring sunshine to some but continued gloom to others.

An early spring for: tracker mortgage customers who will be better off

Spring has come early for homeowners on tracker deals, who should now be left with even more cash in their pockets. That’s because tracker rates vary in relation to the base rate and not at the discretion of lenders (see SVR info below), so when the base rate goes down, so do repayments.

An early summer for: the mortgage holders whose lender owes them!

One group of borrowers will be breaking out the factor 10. In mid 2007, some Cheltenham and Gloucester customers signed up to tracker mortgages that charge the base rate minus 1.01%, meaning that, in theory, they should be paid interest as their mortgage rate is now minus 0.51%!

But it’s a prolonged winter for:

• Fixed-rate mortgage holders. Yet again, these homeowners may look on with envy at those with trackers or certain standard variable rate (SVR) deals, who are paying less and less each month. However those homeowners might do well considering many of the fixed rate deals around at the moment, so we suggest speaking to one of our fully qualified advisors to find out more.

• Some SVR holders. Sadly, an increasing number of mortgage lenders are failing to pass on rate cuts to customers. Only 11 of the 93 UK lenders passed on February’s rate cut in full, compared with 30 in October 2008. It remains to be seen just how many lenders will pass on this month’s reduction. Again, it may be in your interest to speak with one of our fully qualified mortgage advisors.

• Savers. Once again there’s no joy for savers, a group that outnumbers borrowers seven to one. Sadly, this means that earnings on savings won’t be bursting into bloom just yet.

How long will you stay on the lender's SVR?

Whilst you may think you are better off staying on your low SVR, you may want to consider what is happening with falling house prices and their relationship with the loan to value (LTV) of mortgage products. In 6 months time where might you find yourself?

This simplified illustration, assuming a continued fall in house prices & a house value of £200000, might make you think twice about choosing to remain on the SVR. Notice how cost and availability of Fixed Rate products is affected over time whilst house prices are assumed to be decreasing.

• Mortgage £150,000
  LTV 75%
  Lenders SVR 3.5% £750/month
  Product available today - Fixed 3.89% = £802/month
• House value falls 15% to £170,000
  Mortgage still £150,000
  LTV 88%
  Products available - >85% LTV Fixed 5.69% = £944/month
• House value falls by 20% to £160,000
  Mortgage still £150,000
  LTV 94%
  Products available = NONE