Savers lose out to home buyers

While millions of borrowers with variable rate mortgages are to enjoy a bigger-than-expected reduction in their monthly bill, those who rely on their savings for income face seeing already historically low returns decline even further.

Halifax, Nationwide and HSBC were among the mortgage lenders to pass on the half-point reduction to their borrowers in full. For a typical customer with a ?60,000 interest-only mortgage, this translates into a monthly saving of ?25. A borrower with a ?150,000 home loan will be ?62.50 a month better-off.

Other lenders whose clients will benefit from the full half-point cut include Bank of Scotland, First Direct, Virgin One and Intelligent Finance.

With a full 2% having been taken off interest rates this year, people with ?100,000 interest-only loans who benefited from all the cuts have seen their monthly outlay fall by ?166 since the beginning of the year, said Charcol, the mortgage broker.

It added that lenders and borrowers were in "uncharted territory," as today's mortgage landscape is very different to a few years ago. In the past, lenders put limits on how low mortgage rates could go. The explosion in tracker mortgage products - which promise to follow the ups and downs of the Bank of England base rate - has left them with little room for manoeuvre.

Nevertheless, Abbey National and Cheltenham & Gloucester, two of the largest lenders, opted to pass on only part of the rate cut to some of their mortgage customers. Abbey's tracker customers will get the full reduction but borrowers on its old standard variable rate - approaching half a million people - will see their rate reduced by 0.4 of a point to 6.10%.

Abbey said its decision to pass on less than the base rate decrease reflects its concern about the impact of the seventh cut this year on savers, who greatly outnumber mortgage-holders.