Read the small print!

Falling base rate should help to reduce mortgage interest rates and bring some relief to borrowers who are feeling vulnerable with negative equity and rising unemployment threatening them. But those who took out ‘tracker’ mortgages in 2007, when mortgage lenders were still caught up in the race to lend to as many people as possible, may find themselves in the bizarre position that their banks are paying them, if base rate falls any further.

A report on the BBC news website explains that tracker mortgages fixed a level of interest at a set amount below the Bank of England base rate – it shows how desperate those banks and building societies were to lend at all costs, as 33 different lenders offered 83 varieties of these loans as ‘loss leaders’ in order to attract customers. While most offered deals of 0.1% or 0.3% below base rate, some were as much as 1.0%, while the Cheltenham & Gloucester, part of Lloyds TSB, had one mortgage offer at 1.01% below bank rate. Could that mean that a further reduction in base rate to 1% or below, which has not been ruled out by the Bank of England, would mean that C&G end up paying interest to their customers on their tracker mortgages? This seems particularly intriguing as Lloyds TSB is now part-owned by the government, who could be set to step in and guarantee mortgage lending under a plan being discussed this weekend according to another report today. The prospect of paying interest to borrowers must have sent the legal departments of the banks and building societies working through the small print of the contracts to see what they can to do avoid this, and the Financial Services Authority so far has not decided on a definite policy as no lenders or borrowers have yet reached this intriguing position, but Ray Boulger of mortgage brokers John Charcol is sceptical that many lenders will be able to rely on their paperwork to fend off customers:
“Many have a clause in the small print but I don’t think that they will stand up if they were not shown in the key facts when the mortgage was arranged,” he argues.

Unit 2 Macro: UK Trade in Services [20 May 2012]
Unit 2 Macro: Real Interest Rates [20 May 2012]
Unit 2 Macro: Bank Cuts UK growth Forecast for 2012 [16 May 2012]
Unit 2 Macro: Monetary Policy and Inflation Glossary [5 May 2012]
Unit 2 Macro: Trade and Balance of Payments Glossary [5 May 2012]
Macro Revision: Putting Things in Context [29 Apr 2012]
Unit 4 Macro: The Euro Zone Crisis (Revision) [22 Apr 2012]
Unit 2 Macro: Revision on Interest Rates and the Exchange Rate [3 Apr 2012]
Posen on slower growth in the UK compared to the USA [30 Mar 2012]
George Buckley at the Millfield Economics Society [28 Mar 2012]
Beyond the Bike - Monetary Policy in Africa [28 Mar 2012]
Unit 4 Macro: Evaluating 3 Years of Quantitative Easing [27 Mar 2012]
Mortgage interest rates, LIBOR and game theory [3 Mar 2012]
A return to Glass-Steagall to prevent another crash? A lesson from economic history. [17 Feb 2012]
Unit 4 Macro: King on the UK Economy [15 Feb 2012]
Evaluating the effect of Quantitative Easing - A Case Against? [12 Feb 2012]
Beyond the Bike - The Importance of Remittances [15 Jan 2012]
Unit 4 Macro: UK Bond Yields Reach Record Lows [11 Jan 2012]
Unit 2 Macro: Quantitative Easing in the UK [8 Jan 2012]
Unit 2 Macro: Revision Quiz on Monetary Policy [6 Jan 2012]
Unit 2 Macro: The UK Housing Market in 2011 [26 Dec 2011]
Unit 2 Macro: Mobile Phones and African Economic Growth [18 Dec 2011]
Beyond the Bike - The Value of Money [19 Nov 2011]
Unit 2 Macro: Should the EU introduce a Tobin Tax? [14 Nov 2011]
AS Macro: The State of British Business [13 Nov 2011]
Eurozone crisis - a selection of resources [12 Nov 2011]
Australia lowers interest rate to 4.5% [1 Nov 2011]
Unit 3 Micro: UK Executive Pay - All in it Together? [29 Oct 2011]
Can the “invisible hand” solve Africa’s poverty? [13 Oct 2011]
Why Is Macroeconomics Such A Mess? [11 Oct 2011]
Greek debt decision tree [25 Sep 2011]
Unit 4 Macro: IMF Flags up Risks of Double Dip [20 Sep 2011]
Inflation in India [18 Sep 2011]
Study Note - Macroeconomic policy objectives [16 Sep 2011]
Mixing with the Nobel Economists [4 Sep 2011]
Unit 4 Macro: Dangers of High Inflation [11 Jul 2011]
Unit 1 Micro: FirstBuy, Affordability and Effective Demand in Property [10 Jul 2011]
AS Macro Key Term: Deflation [24 May 2011]
A2 Micro: Oligopoly [20 May 2011]
UK Economy Update: What Mervyn Said [11 May 2011]
Interest Rates Held at 0.5% once again [5 May 2011]
AS Macro: Updated presentation on monetary policy [4 May 2011]
A2 Macro: Back to Roubini - a Year On! [11 Apr 2011]
OCR F585 June 2011: Euro Area on the Rocks? [11 Apr 2011]
ECB breaks rank and raises interest rates [7 Apr 2011]
AS Macro Key Term: Expansionary Monetary Policy [4 Apr 2011]
A2 Micro: Updates on Competition Issues [2 Apr 2011]
Why is the Yen appreciating? [18 Mar 2011]
Timetric: Mortgage Lending and Mortgage Rates [14 Mar 2011]
Ireland - Mass Unemployment and Shrinking GDP [10 Mar 2011]
the latest data from the MPC [8 Mar 2011]
The Cost of Credit - Mining the Card Charges [1 Mar 2011]
Challenges facing the London Economy [12 Feb 2011]
David Smith on Shifting Sands in the Global Economy [8 Feb 2011]
Martin Weale argues for higher interest rates now! [1 Feb 2011]
Regulation and the banking industry: reflections from Davos [30 Jan 2011]
Shorting the market - the vultures target HMV [23 Jan 2011]
Will we have to live with high unemployment? [17 Jan 2011]
VAT and macroeconomic management [4 Jan 2011]
CPI, RPI overshoot targets. [15 Dec 2010]
iLand - Shareholders and Taxpayers feel the Pain [24 Nov 2010]
What You Need to Know About Economics [18 Nov 2010]
The Acid Burns Through - Requiem for Neo Liberalism [28 Oct 2010]
Jerome Kerviel and the Principal Agent Problem [5 Oct 2010]
Mortgage equity withdrawal [1 Oct 2010]
Housing market and negative equity [31 Aug 2010]
Credit squeeze - businesses rely more on factoring [23 Aug 2010]
King on the economy [11 Aug 2010]
Choppy times ahead [11 Aug 2010]
Housing and the British Economy [5 Jun 2010]
A selection of revision notes on monetary policy [4 Jun 2010]
Australia divided on a mining super-tax [4 Jun 2010]
Are we on the cusp of a second banking crisis? [1 Jun 2010]
AS Macro Revision: Household Saving [30 May 2010]
AS Macro Revision: Consumer Borrowing [30 May 2010]
AS Macro Revision: The Importance of Consumption [30 May 2010]
Euro Land and Optimal Currency Areas - A Valentine’s Day Massacre [29 May 2010]
AS Macro: Sterling and the UK Economy [29 May 2010]
Roubini at the LSE - governments run out of policy bullets [20 May 2010]
The Financial Crisis and Beyond [6 May 2010]
Classroom Resource - Global Interest Rate Tracker [2 May 2010]
AS / A2 Revision - Where Next for the UK Economy? [2 May 2010]
AS Economics Revision - Managing the Economy [2 May 2010]
Issues and Prospects for the UK Economy in 2010 [25 Apr 2010]
Accommodatory policies [24 Apr 2010]
Robert Peston - On the Money [5 Apr 2010]
A widening North-South divide [2 Apr 2010]
Small businesses and financial economies of scale [2 Apr 2010]
Capitalism - A Love Story [5 Mar 2010]
UK CEOs on their recession strategies [23 Feb 2010]
US rate rise causes hot flows of money [20 Feb 2010]
Inflationary pressures in China [16 Feb 2010]
Celebrities lobby for a Robin Hood tax [10 Feb 2010]
Mervyn King on Tailwinds and Headwinds [10 Feb 2010]
50-year decline in housing affordability [20 Jan 2010]
Assorted Links (18 Jan 2010) - Focus on Interest Rates [17 Jan 2010]
Assorted Links (11 Jan) - Focus on Business Economics [11 Jan 2010]
Assorted Links (6 Jan) [6 Jan 2010]
Assorted Links (30 Dec 2009) [29 Dec 2009]
Revision Presentation - Monetary Policy for AS Economics [27 Dec 2009]

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