Don’t Expect To Get A Loan For Free
Over the past few months, the monetary policy committee of the Bank of England have reduced the base rate of interest on homeowner loans and mortgages by a staggering 3.5 per cent, so that the base rate now stands at only 1.5 per cent, the lowest in the history of the Bank of England.
As the effects of the credit crunch are biting even harder and the UK economy is now officially in recession, there is a wide amount of speculation that interest rates could get even cheaper than they currently are, possibly even reaching zero per cent.
Many borrowers with existing homeowner loans, particularly those who are currently on a tracker rate or standard variable rate are getting quite excited at the moment, as their monthly loan repayments seem to be getting lower each month and a large number of borrowers are looking forward to the time when rates fall to zero and they will not be paying any interest, effectively getting a loan for free.
Most banks and building societies had included a collared rate on their tracker deals, but since nobody ever expected homeowner loan rates to become as low as they have done, this information was not included in their documentation and therefore the Financial Services Authority (FSA) declared that these collars could not be enforced and lenders would have to honour their agreements, in the interests of treating customers fairly.
But speaking at the recent Council of Mortgage Lenders (CML) conference, a spokesperson for the FSA said that it was unlikely for this situation to even have been considered when the original loan was applied for and it would be irrational of borrowers to expect their loans to be cost free and even more ridiculous to expect a lender to pay someone for borrowing money.
Banks are in the awkward position of having to try and balance loan rates against savings rates, to attract new depositors and this means that it will be unlikely for homeowner loan rates to reach zero per cent. Of course, this all depends on the actual wording of the loan agreement and if a borrower were to challenge a lender not reducing rates in the courts and won, it could open the flood gates for many more claims against lenders.
It will be interesting to see what the FSA have to say then!
