Owners could pay 0% interest

By Sarah O'Grady
Posted: 2008/11/12

Some home owners could enjoy interest-free mortgages next year if rates continue to fall steeply.

Cheltenham & Gloucester, which is part of Lloyds TSB, offered a two-year tracker mortgage of 1.01 per cent below the Bank of England base rate in July and August last year.

If the base rate falls to one per cent, as many are predicting, those on the deal won't have to pay interest on their mortgage at all, and will only have to make capital repayments.

With the base rate at three per cent, home owners who took out one of the loans are now paying interest of just 1.99 per cent.

Anyone with the mortgage on an interest-only basis has a monthly cost of just £165.83 on a £100,000 loan, while those with a repayment mortgage are paying £423 a month.

It's not just borrowers with C&G who could see their payments fall below one per cent.

In August last year the Cooperative Bank was offering a two-year tracker at 0.61 per cent below base rate. Nationwide also had one of 0.27 per cent below base rate, although the bank will not go lower than three per cent.

Lenders came under attack yesterday after they pulled hundreds of cheap home loan deals despite the biggest interest rate cut for decades.

First-time buyers have been hit hardest, with only 32 different mortgages available for those with a five per cent deposit compared with 38 last week and more than 1,000 in July 2007, according to Moneyfacts.co.uk.

http://www.cheltglos.co.uk/