Interest rates may, eventually, be on their way down, but will homeowners benefit?  According to the Council of Mortgage, that depends on who you are.

The CML, which represents lenders accounting for more than 90 per cent of all UK mortgages, says that almost half of all existing borrowers are on fixed rates. Their repayments will be unaffected by changes in rates, either up or down, until their deal runs out.  A further 25 per cent of borrowers have tracker mortgages which, as their name implies, track changes in interest rates.  The CML calculates that the 0.75 per cent cut in base rates since last December will have been passed on to borrowers with Bank rate trackers in full. 

The remaining 25 per cent of borrowers are largely made up of those with a variable rate mortgages.  They may not have benefited in full from the recent cuts in rates, but the CML says that these homeowners tend to have relatively small mortgages.  Although they represent 20 per cent of all mortgage borrowers, they account for only around 10 per cent of mortgages balances outstanding, so they are likely to be under less financial pressure.

Those who are really affected by the credit crunch are those trying to borrow for the first time or to re-mortgage.  The difference between the base rate and the rate charged by lenders has widened in recent months, so borrowers setting up a new mortgage may find that they have to pay a higher rate relative to the Bank of England's base rate.  They will also have to come up with a larger deposit as the number of 95 per cent loan to value mortgages falls.

Ultimately, the CML says that competition between lenders will resolve the situation, but only when demand for mortgages falls to something like the supply of available funds.  When that happens, and the Bank of England's £50 billion liquidity scheme is expected to help, lenders will once again be competing to attract borrowers.  Ironically, the continued demand for property and for mortgage finance is the very thing that is allowing banks and building societies to tighten lending criteria and raise rates.