Homeowners Facing No Interest on Mortgages
Thursday, February 5, 2009 10:57
The economy has sunk into recession amid a collapse in consumer confidence and a freeze on new lending. In the past two quarters, the economy had already shrunk by more than 2% and anxieties have mounted since the IMF predicted that the GDP of UK would fall by 2.85 in 2009, marking the worst UK performance in 60 years.
Today, interest rates were cut by 0.5% points to 1% in a bid to boost the economy. As the Bank of England cut the cost of borrowing for the fifth month in a row, thousands of homeowners are now facing the possibility of paying no interest on their mortgages.
From next month, about 1,500 customers who took out a tracker mortgages pegged at 1.01 points below the base rate with Cheltenham & Gloucester will be paying no interest at all on their home loans. It becomes the first time that a mortgage lender has been forced to reduce the interest on their home loans to zero.
According to Lloyds Banking Group, there is some problem with the new policy in practice. As the computer systems could not cope with zero, the bank would be temporarily charging 0.001%, or 8p a month for a borrower with a £100,000 mortgage. But, the money will be refunded later.
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