If you are a homeowner, you were probably feeling quite chirpy after the Bank of England recently announced a base rate cut from 5.75% to 5.5%.
At last, a reduction in your monthly payments! It may not have seemed like much, but after five previous increases – causing belt-tightening in many households – every penny counts.
However, most lenders don’t appear to have taken much notice of the base rate cut. Indeed, some appear to be stalling on implementing cuts in their mortgage rates – costing borrowers an estimated £26m in a month.
This is the difference between the "old" rate many borrowers are currently on and the "new" one they might reasonably expect after the Bank of England announcement.
Moreover, banks such as Barclays, NatWest and Lloyds TSB hit many of their savers with cuts up to 0.25% in some accounts in the weeks leading up to the rate drop. At the time of writing, they had yet to announce any mortgage rate reductions.
By contrast, Halifax, Nationwide, Abbey and First Direct each said their respective variable rate and tracker mortgages will go down the full 0.25% – although these changes won't be implemented until the New Year. Any cuts in savings rates will follow at the same time.
Egg meanwhile has only introduced a marginal cut in its rate – it will be reducing its SVR by 0.15%, from 6.94% to 6.79%, as of 1 January.
The difficulty for many banks is that they are desperate to maintain their margins in the wake of the current credit squeeze. Cutting mortgage payments would hit not just their profits but also force them to borrow more on the money markets – and pay through the nose for the privilege.
But while the banks maintain and sometimes boost their margins, borrowers are left to feel the pinch over the expensive Christmas period.
So what should be your next move?
With further interest rate cuts expected in the new-year, tracker mortgages appear to be the most appealing option, at least in the short term.
As they are set at a fixed margin to the bank rate, lenders have no option but to reduce them by the full 0.25%.
That said, if your fixed rate mortgage is due to expire in the next few months you must apply now if you want to capitalise on a good tracker rate.
At the end of the day, what makes a tracker worthwhile is not just that it will fall in line with anticipated future base rate cuts but how it is priced – its so-called margin – in the first instance.
This is because while rates for those with existing tracker deals are falling, new trackers have been heading up due to the turmoil in the wholesale markets.
That’s why you should apply now to get the best deals – mortgage offers are usually valid for three months and it could prove difficult to get a better rate after this period.
One of the leading tracker products on the market currently, is available from the Woolwich at 5.64% for two years. It comes with a fixed fee of £995 but that is fairly standard and the Save and Switch package that accompanies the deal offers free valuation and free legals (or £250 cashback).
That however, is a re-mortgage only deal. If you’re a first-time buyer consider the 5.73% two-year tracker available from Nationwide Building Society, which is a good rate albeit with a very high fee of £1,499.
For savers, the message is mixed.
There should still be some exciting deals as banks look to pull in money to compensate for the freeze in the wholesale markets. But some may shortly start to re-adjust their rates, so you should keep an eye on what your savings provider is doing and move your money swiftly if necessary.
The Alliance & Leicester eSaver is still offering 6.5% AER – but there are penalties for withdrawals. If you want regular access to your money, check out the ICICI HiSAVE Savings Account which has a rate of 6.41% AER and a guarantee to be at least 0.3% above the base rate until 31 December 2011.
So while it may be Christmas time and our minds are clearly on matters more appealing than mortgage and savings rates, smart customers should use the festive period to reorganise their finances.
After all, if the banks don’t offer us any Christmas spirit, why should we?
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.