Ok so the Bank of England reduced the UK Interest rate 1% yesterday taking it down to 2% what does this mean to the little people I hear you cry!

In theory this would reduce the cost of the average household mortgage by approximately £85 per month making life a little easier.

But hang on!

Wait a minute!

Will we actually see this saving ourselves?

Unfortunately for me and you if answer is likely to be a resounding no the reasons for this are stated below.

1) Many people are on a discounted fixed rate mortgage that will remain the same untill the end of the fixed rate period has passed.

2) Many other people are on a tracker mortgage - But surely this is good news if the interest rate falls so does the monthly payment. For the most part this is correct however many trackers include a ‘cap’ and ‘collar’. The cap is designed to limit the upper level the mortgage interest rate can reach and the collar is designed to prevent the mortgage interest rate reaching below a certain level.

Many people have a cap and collar as part of their tracker and maynot have even realised. With interest rates now down to 2% ( the lowest in 60 odd years ) most ‘collars’ will have limited around the 3% range.

3) Many banks have still ot passed on the previous 1.5% drop from 2 weeks ago. Alaistair Darling has been very vocal in the news stating a deadline for this drop to be passed on to the customers. We can expect to have the same kind of problems seing the new 1% drop being passed on to consumers.

Time will tell what kind of effect this will actually have on spending habits and the all important housing market. Remember 2009 is round the corner - lets hope its a better year.

Regards,

Simon
Editor