Timing is all important as mortgage rates come down

MORTGAGE LENDERS followed the Bank of England's lead both quickly and in full this week, cutting mortgage rates by 0.5 per cent. On a typical pounds 60,000 interest-only mortgage, this should mean a drop of pounds 24 a month.

Anyone who has taken out a fixed-rate mortgage will not of course benefit - and some fixed-rate holders who locked into long-term deals a year or more ago will be nervously doing sums on the back of the nearest envelope.

In most cases they will still be comfortably in credit, as will new borrowers. Even after this week's cuts, standard variable rates will be running a good 1.5 to 2 per cent higher than most fixed-rate offers over the next two to five years. Equally, there is no need for anyone contemplating a fixed-rate loan to rush into anything. New fixed-rate offers are unlikely to be increased in the near future, especially now it seems to be a matter of when rather than if the UK adopts the Euro currency and moves interest rates into line with the continent. The next round of fixed rates could well be cheaper.

In the meantime, borrowers with variable-rate mortgages will enjoy the second cut in their monthly repayment rates this year, although they may not feel the benefit right away. Most lenders now alter monthly repayments only once a year, to save the cost of sending out revised accounts every time rates change. So more than half the current borrowers now pay a set rate for the full financial year; any over- or under-payments are taken into account when next year's payments are set.

But whether your payments are changed immediately or annually, the date at which new rates apply is important - and these dates can vary significantly from one lender to another. Lenders frequently cut new borrowers' mortgage rates immediately, in order to compete for new business. But they can delay cuts for existing borrowers for up to six weeks, wringing out of them an extra few weeks of higher- rate interest.

Some lenders are quicker than others at changing their rates. Research commissioned specially for The Independent shows that when rates last rose in June this year, the big lenders - including the Halifax, Abbey National, Barclays, NatWest and Cheltenham & Gloucester - raised their variable rates from the beginning of July, while many of the smaller lenders waited until August or even September before raising rates.

When rates were cut last month a handful of lenders, including the Yorkshire Bank, Yorkshire Building Society and the Chelsea BS, cut their rates within 10 days, but the bulk of lenders implemented cuts only in November. Bristol & West's and Northern Rock's have not yet taken effect, and the Alliance & Leicester intends to wait until January.

The timing of these adjustments can be almost as important as the actual rates involved. Anyone with a pounds 50,000 interest-only loan from Alliance & Leicester could be waiting 74 days for a cut to take effect, compared with a borrower with a similar loan from Yorkshire Building Society. The difference could be pounds 70.96 before tax relief.

Lenders also change their rates for borrowers and investors at different times. When rates rose in June, Alliance & Leicester waited six weeks after raising rates to borrowers before they offered more to investors. When rates were cut last month, NatWest, Bristol & West and Northern Rock all cut rates to investors significantly before they cut rates to borrowers. Watch out for persistent offenders in these changing times, and look out for better deals elsewhere.