Some of the biggest lenders have a get out clause that could see them refusing to pass on future base rate cuts to their tracker mortgage customers.
Economic turmoil is increasing the pressure on the Bank of England to dramatically cut the base rate, with some economists calling for rates to be slashed to below 2%.
This makes tracker mortgages an extremely attractive proposition, as the rate customers pay is tied to the base rate.
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Hot under the collar
However, some lenders – including Nationwide and Halifax – add what is known as a ‘collar’ to their mortgage contracts, which states that they don’t have to pass on any cuts below a certain point, irrespective of how low the base rate falls.
Nationwide currently sets its rate at 2.75%, while Halifax has an option not to pass on rate cuts below 3%. This is terrible news for tracker mortgage customers, who are currently paying a very high premium in order to benefit from falling rates.
Thankfully not all lenders make use of collaring, with Royal Bank of Scotland, Abbey and Woolwich promising to pass on all cuts, regardless of how low the base rate falls.
What this does highlight is the importance of scouring over the fine print of your mortgage contract before signing on the dotted line.
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Discount mortgages have their own problems
Some customers may be considering discount mortgages as a way to benefit from falling rates. Unlike trackers, these mortgages are linked to a lender’s standard variable rate (SVR).
The problem here is that lenders are able to set their own rates, so you’re by no means guaranteed that they will pass on the base rate cuts – numerous lenders have already come in for criticism for failing to pass on last month’s 0.5% cut to customers on their SVR.
Discount mortgage best buys
