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The Bank of England’s recent cuts have led to rates being reduced on two more mortgages.

Standard Life Bank will lower its Freestyle Standard Variable rates by a quarter of a percent to 7.21% as of January 1, 2008.

HSBC is also planning to reduce its variable mortgage rates by a quarter percent - from 7% to 6.75% as of December 24, 2007.

On December 6, following the Bank of England’s decision to cut the interest rate, HSBC was one of the first lenders to react - immediately reducing the rate of its tracker mortgage. The bank’s newest reduction puts its variable mortgage rate at least 0.24% lower than most of its high street rivals.

Financial comparison website Moneyfacts.co.uk reported last week that 31 providers had implemented changes to their interest rates following the cut. Twenty-five reduced rates by more than 0.25%.

However, analyst Lisa Taylor criticised the response of the banks, saying current changes compared unfavourably with reactions in past years.

The last time rates fell back in August 2005, 46 lenders announced changes to their rates.

According to mortgage broker John Charcol, tracker mortgages are better value than fixed-rate contracts because borrowers are not permanently committed to lender rates. 

Ray Boulger, senior technical manager for John Charcol, claims trackers have “really come into their own” following the Bank of England’s recent cut to interest rates. With only a few lenders lowering their rates accordingly, a variable mortgage provides a lot more protection. 

Boulger noted: “We have seen over the last few years there is always a proportion of lenders who do not move their rate in line with the Bank’s rate.” 

“Most of the time a tracker mortgage is a quarter of a [percentage point] higher than a fixed rate mortgage, providing the starting point is good.”

Looking ahead, Boulger predicts that trackers will continue to sell strongly in the near year despite some lenders reducing the number of mortgages in their portfolio due to the credit squeeze.  Lenders are not expected to place restrictions on them as base rates fall. 

Boulger does not expect there to be a significant rise in the number of people switching mortgages in 2008. 

He added: “The reality of people deciding to look at their mortgage product is based on whether the value of a discount mortgage is cheaper than a tracker mortgage or vice versa.”

Despite a recent crackdown on mortgage exit fees, customers are being warned to be careful when changing lenders. 

Mortgage website mform.co.uk has completed research showing that the average cost of closing a loan remains about £150. This is regardless of efforts made by the Financial Services Authority (FSA) in August to make the process clearer to customers.

The website’s analysis covers all major lenders. Although a few such as Royal Bank of Scotland group, Standard Life Bank, Lloyds TSB and Cheltenham & Gloucester have abandoned fee schemes, most continue to charge over £100. 

According to mform’s report, many mortgage companies were not making charges clear on their websites. 

FSA is still pushing to make lending terms more transparent and has ruled that next year customers may reclaim exit fees if they paid more than the amount agreed to in the original terms and conditions of their contract.

Francis Ghiloni of mform praised lenders who have eliminated exit fees and attributed the improving situation to the FSA’s work. 

“They should be considered at the start rather than come as a nasty surprise when it’s time to move on,” Mr. Ghiloni said, referring to the hidden fees many borrowers encounter when trying to wrap up their mortgages. 

Borrowers are finally waking up to the fact that such charges are part of the price of the mortgage deal - they don’t relate to any administration costs. 

Improvements spearheaded by the FSA would be especially helpful to people who regularly remortgage and move from lender to lender.

Mr. Ghiloni advised borrowers to learn what they could at the outset of their loan and to “take into account exit fees as well as application fees and other costs which will have an impact on the true cost of their loan.”