Only the fittest will survive

The Bank of England, as expected, trimmed interest rates by 0.25% to 5%. However, today's rate cut is unlikely to help many homeowners as lenders either withdraw or replace reasonably-priced products with expensive ones. According to a recent study by money website Fool.co.uk, this will hurt three out of four homeowners. They face significant jumps in monthly mortgage payments when their special-rate deals are replaced by Standard Variable Rate (SVR) mortgages.

Currently, the average SVR for UK's biggest lenders is 7.2%. This is more than 2% higher than the Bank of England base rate. Additionally, lenders are not required to link their SVRs to the official base rate. One lender, namely Skipton, even charges new clients a £799 fee to apply for its most expensive SVR mortgage.

David Kuo, Head of Personal Finance at Fool.co.uk, says: "The quarter point cut in the cost of borrowing by the Bank of England is unlikely to make much difference to worsening credit conditions.

"In less than a month, the mortgage market has gone from a financial jungle to the law of the jungle, which has left many borrowers bereft of choice. Only the financially fittest will survive.

"If you can, you should use emergency savings to reduce the size of your loan. Others have to assume the worst which will mean tolerating unattractive and expensive mortgages until credit conditions improve."