Tracker Mortgages v Base Rate Cut

November’s 1.5% base rate cut came as a welcome surprise to people on tracker mortgages, but it seems the Bank of England’s Monetary Policy Committee (MPC) had actually considered a larger cut.

The minutes of the meeting reveal that the MPC had debated a cut of 2%, but decided against it on the grounds that it could have had a negative impact on sterling. Even so, anyone with a tracker mortgage will be pleased by the implication that a further cut is a real possibility in December, the next time the MPC looks at interest rates.

People on tracker mortgages, of course, aren’t necessarily the only ones to benefit from rate cuts, but they are the only ones whose current mortgage is guaranteed to match any drops in base rate.

Those paying a standard variable rate (SVR) mortgage may benefit, although this is up to the individual mortgage provider, who isn’t obliged to pass on any reduction at all, let alone the full 1.5%.

And people on fixed-rate mortgage deals obviously won’t see any change to their mortgage payments - although base rate cuts can help mortgage providers offer new fixed-rate deals at lower prices.

Even here, though, there’s no guarantee, as the base rate isn’t the only factor mortgage providers have to take into account. As the Council of Mortgage Lenders has pointed out, lenders don’t ‘automatically benefit from any cut in Bank rate’, as ‘the cost of funds to lenders depends not on Bank rate, but on a range of other factors, including what they have to pay savers to attract deposits, how much it costs them to borrow in money markets, and the costs of holding capital and sufficient liquidity’.

All of which is largely irrelevant to people on tracker mortgages - particularly the ones who signed up to a tracker deal when they were still being offered at around 0.3% above the base rate, rather than 1.6% or more above, as is now more common.

Related articles:

1. Tracker mortgages and base rate cuts: what’s next?
2. Base rate cut to historic low of 1.5%
3. Base rate cut – impact on the remortgage market
4. Bank of England Base Rate Cut
5. Bank of England cuts base rate