Some interest rates on trackers have not fallen in line with the Bank of England’s rate cut, meaning borrowers could miss out on much-needed savings.
Last week the Basic interest rate reduced from 5% to 4.75% in an effort to make borrowing cheaper.
While those with a fixed rate will see no change in their mortgage rates because they have locked in a fixed price, borrowers with a tracker mortgage should see their rates drop accordingly. This is because these mortgages have a variable interest rate that adjusts to the Bank of England (BoE) interest rate.
But last week it emerged that Santander customers with tracker mortgages would have to wait until December 28 at the earliest before their interest rates would be reduced.
Meanwhile, we heard through a broker that another lender – Accord Mortgages – does not routinely pass on cuts to the BoE base rate immediately.
It said customers would have to wait until March 2025 to see the adjustment to their payments unless they proactively requested a recalculation online.
Nick Mendes, mortgage technical manager at John Charcol, said that while it was expected that borrowers would immediately see the impact of the base rate cuts on their tracker, this was not always the case.
“Normally a tracker mortgage is adjusted shortly after the Bank of England changes the base rate,” he said.
“However, the timing depends on the conditions set by your lender. While many lenders apply changes almost immediately, others may include clauses that delay these adjustments, leaving borrowers paying out-of-date rates for extended periods.”
Some brokers think this is unfair, especially because they believe that lenders are often quicker to pass on increases in the base rate.
Rohit Kohli, director of The mortgage freeze said: “Borrowers will expect that when savings are made available through an interest rate cut by the Bank of England, this will be passed on immediately, and not at the lender’s convenience.
“When interest rates rise, lenders appear to pass the increase on to borrowers almost immediately. But when interest rates fall, as we have seen with the recent Bank of England rate cut, it takes much longer to pass on the savings.
“For example, Santander tracker customers will not see their rates fall until the end of December – almost seven weeks after the rate cut. While this may be standard practice, it raises questions about fairness and whether lenders are truly acting in spirit Consumer duty.”
What tracker mortgage borrowers should do next
So, what should mortgage lenders follow do to ensure that they can enjoy all the financial benefits of interest rate cuts?
Mendes suggested several steps, starting with reviewing the terms of your mortgage agreement to understand the details surrounding the timing of the interest rate adjustment.
“If you are unclear,” he said, “contact your lender to clarify policies regarding payment changes, especially during periods of declining interest rates.
“Lenders like Accord require borrowers to act proactively and request a payment recalculation immediately after an interest rate reduction. Sharing this information with others is also valuable in helping them avoid unnecessary costs.
“Tracker mortgages offer flexibility and cost-saving potential, but understanding the fine print is essential.”
He added: “By remaining vigilant and proactive you can ensure you get the full benefit of your tracker mortgage.”