The Halifax has said that it may invoke a clause in its tracker mortgage contracts if the Bank of England lowers the base rate any further.

A clause in their mortgage contract imposes what is termed as a ‘collar’ on its interest rates, in others words, a rate below which it will not drop and the rate in question is 3 percent.  This means that if the Bank of England drops the rate to 2.75 percent or even 2.5 percent or less,  then borrowers with the Halifax may not benefit.

This clause also applies to the Halifax’s brand BM Solutions, but not to Intelligent Finance, the online arm of Halifax.

This clause breaks the Financial Services Authority (FSA) regulations, which state that all terms of a mortgage should be clearly highlighted in mortgage documents, and it seems that the Halifax has not done this.

MPs have been encouraging the Halifax to drop their clause, especially as a 0.25 percent drop would save consumers around £140 million, but the Halifax has not stated its intention either way.

Other lenders also invoke a collar, but not as severe as the 3 percent collar from the Halifax.  In addition, where the base rate drops below 3 percent, the Halifax would not pass this cut on, however, if the rate then subsequently rose again, the Halifax could still pass that rise on, which is unfair on the borrowers.

The Nationwide, for example, has a collar set at 2.75 percent, however, they also will not pass on the interest rate rises where they have not passed on the rate cuts, so at least the borrower does not get hit in the pocket twice.

The Halifax did say that if it invokes its collar clause, then the borrowers do have the right to switch to another of its products free of charge.  However, it seems that that move would result in the borrowers paying a much higher interest rate.

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