Around a third of borrowers - approximately four million people - with mortgages that track Bank rate reaped immediate rewards. For example, those with an existing £200,000 tracker deal could see their monthly payments fall by around £700 a year.
There was relief too for borrowers with discount mortgages as several lenders announced changes to their standard variable rates (SVRs). Barclays, Halifax and Lloyds TSB, which also sells mortgages under the Cheltenham & Gloucester (C&G) brand, were among the first to announce that they would be passing on the full benefit of the rate cut - slashing their SVR by 0.5% from November 1 onwards. The Royal Bank of Scotland (RBS), NatWest, Clydesdale Bank and Yorkshire Building Society matched those terms, while First Direct cut its SVR by 0.5% with immediate effect.
For around 5% of borrowers on a SVR and another 7% who are on mortgages linked to the SVR, the news offered a rare reprieve after months of doom and gloom in the property market.
Will the rate cut help the housing market?
Figures released from Halifax showed that house prices fell for the eighth month in a row in September, this time by 1.3%, with a further £2,000 wiped off the average value of a home. The average property price has now fallen to £172,108 - down from around £200,000 in the same month last year.
The decline, which has surpassed that of the housing market slump in the 1990s, may only be the beginning. Despite rates on tracker mortgages falling following the rate cut, credit conditions remain tight and house price falls appear to have some way to go with Capital Economics predicting that prices will fall by 35% from their peak in August last year.
Those hoping that the banking bailout would signal an era of cheaper borrowing should think again as C&G used the rate cut as a prompt to withdraw some of its most competitive tracker deals. And Abbey has said that it is not re-pricing its tracker rates for new customers because wholesale funding costs remain high.
So what should you do if you need a new mortgage?
Many borrowers are likely to be drawn to variable rate deals as most economists believe this month's cut in Bank rate is the first in a series - some think Bank rate could fall to 3.25% next year.
Cheltenham & Gloucester offer the most competitive two-year tracker at 1.09 points above Bank rate, giving a current pay rate of 5.59% with a deposit of 25% and a £1,995 product fee. Scottish Widows offers the leading three-year tracker deal with a current pay rate of 5.75%, also for deposits of 25% or more, but with a large arrangement fee of £2,499.
Another option is a lifetime tracker - these deals look particularly attractive at the moment as the rates are not much higher than shorter-term products and they remove the hassle of remortgaging every few years.
The leading lifetime tracker is offered by First Direct at 0.49 percentage points above Bank rate, so with a current pay rate of 4.99%, with a £999 fee for deposits of 20% or more, with legal fees paid. HSBC is also competitive with a current 5.29% pay rate on loans up to 75% of a property's value with a £599 arrangement fee. Anyone remortgaging to this deal also receives a free valuation and legal fees are paid.
Discount mortgages will also hold appeal with Bank rate expected to fall - although discount rates are not directly linked to Bank rate, the majority of lenders do pass on interest rate reductions in full. Bear in mind when comparing discounted rates at the moment that most lenders have yet to react to the recent Bank rate reduction, so the rates currently advertised could fall in the coming weeks.
The leading two-year discount rate is available from Principality Building Society at 5.68% with a £999 arrangement fee, although this is only available to those with a discount of 40% or more. If you have a smaller deposit, the HSBC two-year discount at 5.69% with a low £249 fee is available for deposits of just 10%. Valuation and legal fees are paid on both of these deals for those remortgaging. If both lenders decide to cut their SVRs by the full half point following the Bank rate reduction, the rates on these products will fall to 5.18% and 5.19% respectively.
Despite the prospect of further interest rate reductions, some people will always prefer the security of a fixed rate mortgage.
First Direct has a two-year fix at 5.39% available to those with a deposit of 20% or more. There is a £1,998 arrangement fee, although those remortgaging receive free legal work. If you would prefer longer term security, Principality Building Society has a five-year fix at 5.57%, while Britannia Building Society has a five-year deal at 5.59%. Both products have a £999 arrangement fee, although Principality offers a free valuation and free legal work to those remortgaging. However, these deals are only available to those with deposits of 40% or more.
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Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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