Banks' Small Print Ruse to Block Cuts; Banking Scam: Interest Rate Cuts May Not Help Homebuyers

Article excerpt

Byline: Becky Barrow

BANKS may use the small print in mortgage contracts to prevent borrowers benefiting from future interest rate cuts by the Bank of England.

Experts warned yesterday that little-known clauses mean the interest rate paid by borrowers may not fall when the Bank's rate drops.

This represents a major blow for cash-strapped homeowners desperately hoping to see their monthly mortgage bill drop.

Last week, the Bank of England cut rates by 1.5 percentage points to 3 per cent.

But many bank giants did not cut their rates until ordered to do so by the Prime Minister.

With interest rates expected to fall as low as zero, millions of homeowners are hoping their bills will be slashed.

But the small print means they may not save a single penny.

Halifax, Britain's biggest mortgage lender, recently ripped up its rule book to allow it to make its mortgage deals more expensive in the future.

In the past, the embattled bank pledged that its standard variable rate would never be more than two percentage points above the Bank's rate.

But, on October 31, it changed the rules so that the standard variable rate can now be up to three percentage points above the Bank's rate.

This has yet to hit borrowers. Last week, Halifax, which hands out one in five mortgages in Britain, cut its standard variable rate by the full 1.5 points to 5 per cent, which means it is still two points above Bank base.

But future cuts by the central bank may not be passed on so generously to borrowers.

Another catch affects 'tracker' mortgages, which 'track' the Bank's base rate. About 27 per cent of the UK's 11.7million mortgage holders have a tracker.

Few customers will have spotted the 'get out clause' in their contract, known as a 'collar', which means lenders can stop their tracker mortgages falling below a certain level.

For example, Nationwide says its mortgages will stop 'tracking' the Bank's base rate when it gets to 2.75 per cent.

Halifax has the right to change the tracker margin when the Bank's rate goes below 3 per cent.

For example, a Halifax tracker may say a borrower must pay 0. …