Many have interest-free mortgages (From Middlewich Guardian)

Many have interest-free mortgages

11:06am Tuesday 10th March 2009

© Press Association 2009

Tens of thousands of homeowners now have interest-free mortgages following the latest cut to the Bank of England base rate.

It is estimated that more than 50,000 people took out tracker mortgage deals that are guaranteed to be at least 0.5% below the base rate during the past two years.

The lowest deal is thought to have been offered by Cheltenham & Gloucester, part of Lloyds TSB, which offered a tracker rate of 1.01% below the base rate, meaning that the 1,500 customers with the loan have not been paying interest since February's cut.

The group also offered other deals that tracked at 0.5% or more below the base rate, as did Halifax, which offered a two-year tracker at 0.51% below base rate for several months towards the end of 2007.

The Co-operative Bank has 500 customers on deals charging interest of 0.61% below base rate, and several buy-to-let lenders, including the now nationalised Mortgage Express, also offered mortgages with rates that have since fallen to 0%.

With the Bank of England base rate now at a new historic low of 0.5%, all of these customers should now find themselves paying no interest on their home loan at all.

Cheltenham & Gloucester (C&G) is currently charging mortgage customers in this position 0.001% interest while it adjusts its computers to accept a rate of 0%, after which people will be refunded the money they have overpaid, while the Co-operative Bank is flooring the rate it charges customers at 0.001%.

The banks say they have taken legal advice and are confident that they do not have to pay interest to borrowers whose deals now effectively charge negative interest.

The Financial Services Authority has also issued guidance saying that the payment of interest is a one way contract.