If you don't get your cut, it may be time to quit

As the base rate falls again, many borrowers won't feel the benefit. Melanie Bien reports on the case for remortgaging
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The Independent Online

There's nothing like an interest rate cut to bring a smile to a mortgage holder's lips, particularly as rates are currently at their lowest level for nearly 50 years.

But whether home owners actually benefit from the latest cut in the base rate depends on their mortgage provider and its standard variable rate (SVR) at the time the Bank of England announced its decision. Some borrowers may be better off remortgaging to another lender if their existing bank or building society won't pass on the cut.

As soon as the base rate was reduced from 3.75 to 3.5 per cent on 10 July, a handful of lenders - Abbey National, Cheltenham & Gloucester, Lloyds TSB and the Woolwich - said their borrowers would see the full cut reflected in their repayments from next month. This means SVRs of 5.5 per cent for C&G and Lloyds TSB, and 5.54 per cent for Abbey National and Woolwich customers.

A few lenders took a little longer to come to that decision. Alliance & Leicester, Bristol & West and Direct Line were among a number who announced last week that they would pass on the full cut to borrowers from August. Other lenders have been less responsive, though this doesn't necessarily mean their customers would be better off elsewhere. Halifax and Nationwide cut their rates by 0.15 per cent and 0.10 per cent respectively, but their SVRs were more competitive than those of many rival lenders in the first place, so borrowers aren't missing out.

Halifax, for example, now has an SVR of 5.5 per cent - the same as C&G. And Nationwide customers can feel even more smug: the 0.10 per cent cut in its base mortgage rate (its equivalent of the SVR) means that its customers are now paying 4.54 per cent - 1 per cent cheaper than Abbey National and one of the lowest rates on the market.

But a number of lenders not only haven't passed on any rate cut this time, they didn't the last time rates were reduced either (in February, again by 0.25 per cent). These include the Chesham, Cheshire, Darlington, Kent Reliance and Monmouthshire building societies. With SVRs ranging from 5.43 to 5.74 per cent, those at the higher end are starting to look uncompetitive, although Kent Reliance (5.43 per cent) and the Chesham (5.5 per cent) still compare favourably with those lenders that did reduce their SVR this time round.

While a 0.25 per cent reduction in the SVR doesn't sound much, it can add up to quite a saving on repayments. Abbey National calculates that borrowers on its SVR with a typical £100,000 interest-only mortgage will save £20.83 a month. And if you are on a discount deal, this will be linked to your lender's SVR, so it's important the rate remains competitive.

With borrowing costs so low, remortgaging is worth considering if you're not happy with your deal. But your freedom to do this will depend on whether you can switch without paying a penalty. "If you are stuck on an SVR because you are tied in, you'll have to grin and bear it," says Mark Harris at mortgage broker Savills Private Finance. "But those who have a choice should exercise that choice and look to remortgage. Approach your existing lender and see if it will offer you a better deal. Chances are it won't and you should then switch to another lender."

Simon Tyler at Chase de Vere Mortgage Management agrees. "Remortgage to a highly competitive fixed rate or discount," he advises. "Review your outgoings and link to the most competitive rates we have seen in a lifetime."

'Woolwich was good to me, but after 35 years I knew I had to leave'

Michael and Sharon Pearse live in West Wickham in the London borough of Bromley and are in the process of remortgaging. Mr Pearse, who is 61, has had an interest-only mortgage with the Woolwich since 1968 but is switching to a part-repayment loan with Nationwide to save on interest charges and ensure that his mortgage is paid off by the end of the term.

Mr Pearse, a retired policeman, used an independent financial adviser, The MarketPlace at Bradford & Bingley, to arrange his new five-year fixed-rate deal with Nationwide, on which interest is charged at 4.09 per cent. His previous five-year fixed deal with the Woolwich had come to an end some time ago, since when he has been on the Woolwich's standard variable rate (5.79 per cent until last week). By remortgaging, therefore, he is saving himself a lot of money.

"Nationwide offers a much better deal and a lower rate of interest than the Woolwich," says Mr Pearse. "The Woolwich has been very good to me in the past but I was disappointed with my endowment, as there is likely to be a shortfall, and I wanted to remortgage to a part-repayment deal."

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