Mortgage rates to fall for annual review borrowers

Many homeowners are set to see hundreds of pounds knocked off the annual cost of their mortgage as lenders recalculate interest rates to take into account last year's cuts, lenders said today.

Borrowers with annual review mortgages are set to see repayments on a ?60,000 mortgage fall by up to ?76 a month as they benefit from the 2% drop in interest rates seen during 2001.

Annual review mortgages, which are offered by some of the UK's major lenders including Halifax and Nationwide, set the rate at which a loan is repaid at the beginning of the year.

The rate does not move with interest rate cuts or rises, but is recalculated at the end of the year to take them into account, with some lenders deducting the amount customers have overpaid due to rate changes from the sum they owe.

The mortgages were popular during periods of interest rate volatility as monthly payments stayed the same throughout the year, helping people to budget.

The majority of lenders review rates for these mortgages between the beginning of January and April. Cheltenham & Gloucester said borrowers on its Annual Instalment Review Scheme would see their mortgage interest rate fall from 7.5% (which it has been since March 2001) to 5.95% from March 1. The reduction will knock nearly ?60 off monthly repayments on a ?60,000 mortgage, reducing them to ?388.92 from ?448.55 during the previous year.

Halifax is waiting for the results of this week's meeting of the Monetary Policy Committee before it sets the rates for its Budget Plan mortgage for the year. However, the Committee said that if interest rates remain at 4%, borrowers would see a significant reduction of around 2%, with their rate coming down from 7.74% to around 5.75%, leading to a ?76.15 reduction in monthly repayments on a ?60,000 mortgage. The group added that only a small percentage of its borrowers were still on this rate.

Nationwide is set to reduce the rate for people with a annual review option on their mortgage from February 1 to 4.74% compared with 7.09% in February last year.

Abbey National said borrowers who had formerly held mortgages with National & Provincial, taken over by the group in 1996, would also benefit from a fall in repayments when their rate was readjusted. Around 100,000 of the group's customers are on its Annualised Review mortgage and they will see the rates fall to 6.1% this year from 7.74%. This will knock around ?63 a month off a ?60,000 repayment mortgage as monthly payments fall to ?394.86.