It’s 6 in a row and more joy for millions of tracker holders

"Today's bank rate cut, to another historic low of 0.5%, will no doubt bring further exclamations of joy from the 3.5 million or so borrowers who have a tracker mortgage with no collar. In just six months, nearly all of these borrowers will have witnessed their rate fall by 4.5%, which will have seen roughly 90% wiped off their monthly payments if their mortgage is interest only. Someone with a interest only mortgage of £150,000 and a rate equivalent to Bank Rate will have been paying £625 a month six months ago, and with today's decision they will now be paying just £62.50. Some borrowers with deals that are priced below Bank Rate will be paying nothing," comments Ray Boulger of John Charcol.

"As well as those with trackers, some borrowers on certain lender's Standard Variable Rates will also be pleased as punch; not something many of us would ever have thought possible. The most notable of these are Cheltenham & Gloucester and Nationwide, who have an underlying guarantee to never be more than 2% above Bank Rate, plus Halifax and Skipton with a guarantee never to be more than 3% above Bank Rate.

"My advice to these borrowers would be to use the current low interest rate environment and the consequent savings very wisely. If you had kept your monthly payments at the same level that you were paying in September, with today's rate you could shave a very impressive 10 years off the term of your mortgage. That said, if you have more expensive debt elsewhere you should look to pay that off first."

A double edged sword

"Yet with this good news for many a word of caution should also be highlighted. Sooner or later rates are simply going to have to rise, and rise sharply. Whilst it increasingly looks like this will not happen until after the next general election, which, with Labour likely to run its full term, will probably be May or June next year, making predictions on that is fool's gold. Borrowers should make sure they do all they can to look as far into the future as possible and focus on the long term view. Whilst convincing someone who is currently paying next to nothing to take a fixed rate between 4% and 5% is as challenging as selling ice to Eskimos, in the long term there is every possibility they will be better off.

"If ever there was a time to seek professional, independent advice it is now. Keeping a daily eye on the market will undoubtedly prove to be a wise strategy, and an adviser can do just that for you. And, if you are a borrower near a loan-to-value threshold then this is even more important. Playing a waiting game that will send you over one of these thresholds will be a losing game as rates move against you. Indeed, if you are at the top end of the scale you may not even qualify for a new mortgage."

And what of quantitative easing?

"With The Bank of England about to commence what will probably be large scale quantitative easing we are entering into even more uncharted territory. However, there may be some guidance on the impact from the US. When the Fed embarked on their recent asset purchase programme they targeted longer term assets in order to force down the price of 10 year Treasuries because that is the benchmark for pricing the 15 and 30 year fixed rate mortgages most people in the US take. As a result 30 year mortgage rates fell rapidly from around 6.5% to around 5.25% currently. If the Bank adopts a similar policy, and the markets don't get nervous about the scale of gilt issuance, gilt yields for periods up to at least 5 years are likely to fall. Swap rates will follow, which should result in somewhat lower fixed rate mortgages, and possibly a partial reversal of the recent steepening of the yield curve.

"In addition, now that the Government has deferred Northern Rock's requirement to repay the remaining £9bn of their Bank of England loan and will pump extra money into both Northern Rock and RBS, and probably soon also Lloyds, on condition that mortgage lending is increased, this extra funding should increase competition, which can only be a good thing."