Tracker mortgage rates down as base rate cut to 4.5%

Homeowners on existing tracker mortgages will benefit from today’s 0.5% cut in the Bank of England’s base rate, to 4.5%.

Halifax has already confirmed that it is reducing its standard variable rate (SVR) from 7% to 6.5%, from 1st November.

Lloyds TSB and subsidiary, Cheltenham & Gloucester, are making a similar reduction in SVR, to 6.5%, also from 1st November.

The Bank of England has kept interest rates on hold at 5% since April in an effort to keep inflation as close as possible to its 2% target.

In a statement accompanying today’s cut, the Bank’s Monetary Policy Committee reported that in the medium-term the risks of inflation had shifted to the downside.

However, today’s action is only likely to benefit one third of the 11.7 million UK households with mortgage debt, as the majority have fixed-rate deals.

The impact of the reduction on new fixed-rate deals has yet to be seen but the recent turmoil in the financial markets has seen a sharp spike in Libor, the interbank lending rate.

Most of the UK’s mortgage lenders fund their business by borrowing on the money markets and it is Libor, rather than the base rate, which plays a major role in determining rates for home loans.

Most analysts expect further reductions in the base rate in the months to come, possibly down to 3.5% by mid-2009.

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