For borrowers who remain in employment, mortgage affordability is not likely to be an issue at the moment.
If the rate cut helps businesses and therefore keeps more people employed, all borrowers will benefit from a softening of the impact of the recession on mortgage and housing markets. Crucially, however, the rate cut is unlikely to create conditions in which there will be any significant increase in new lending.
Meanwhile, as the lower Bank rate again reduced costs for some borrowers with tracker mortgages, the Financial Services Authority (FSA) made a helpful statement about the fundamental relationship between lenders and borrowers.
While some commentators continue to speculate that lenders could end up paying interest to borrowers with tracker mortgages, an FSA spokesman was reported in The Guardian as saying:
“We have looked at some (contracts) and our judgment is that the obligation of paying interest is a one-way obligation. Interest is paid by borrowers to lenders. It doesn’t get to the point where a lender has to pay ‘interest’ to a borrower. Once it has reached (zero), a borrower can’t change his status to being a lender, and vice versa.”
At a recent CML conference, the head of the FSA’s unfair contracts team, Katherine Webster, emphasised that individual contract terms should determine what happens. The reality is, however, that it is highly unlikely that any individual lender’s term allow for a change of status of the borrower, or for the lender to pay interest to the borrower in any circumstances.
