The Financial Times has reported that borrowers who would have been desirable customers just a few months ago are being refused the best deals for mortgages and personal loans as lenders take an increasingly firm line on the most minor of credit discrepancies.

Although there has been a sharp fall recently in interest rates the best rates are only available to customers with an exemplary credit report. The FT cited examples of borrowers being refused a mortgage because they had paid a mobile phone bill a few days late, or because they had opened a number of different savings accounts, which had triggered multiple credit searches from banks.

They said that while some lenders were actively touting for new business and claiming to pass on rate cuts to customers, behind the scenes they were being extremely selective about who they would offer loans to.

Borrowers need to be aware that each lender will be in a different position with respect to their ability and willingness to lend. This can change drastically in relatively short periods of time.

Banks are taking a particularly tough attitude with customers who have smaller deposits or are looking to borrow large sums.

Ray Boulger at John Charcol, said some banks were rejecting mortgage applications even when there was a perfectly reasonable explanation for any blemish that appeared on the credit history.

“Lenders are being much less flexible now if a client is good quality but can’t quite tick all the boxes,” he said.

The Financial times reported that borrowers who took out tracker rates last year could see their interest rate drop to zero-or possibly into negative territory-as lenders are removing the “collars” that prevent rates falling below a certain level.
Halifax and Nationwide have clauses that prevent existing customers seeing any benefit if the Bank of England base rate falls below 3% and 2.75% respectively. But both lenders have removed these collars following government pressure to pass on this weeks 1% cut to borrowers.
Some lenders could be paying as little as 0.99% since, a year ago, the cheapest tracker rate from Cheltenham & Gloucester, was priced at 1.01% below base rate.

Mr Brown has managed to sign up eight banks - HBOS, Nationwide, Abbey, Lloyds TSB, Northern Rock, Barclays, Royal Bank of Scotland and HSBC - representing 70 per cent of the mortgage market. Also, building societies say they are interested in taking part.

The Financial Times reported that financial markets expect UK rates to fall to 1% in the months to come.

But how good will this be for mortgage borrowers?

As the FT reported, not all banks are going to pass on the full reduction. For example, Halifax cut its standard variable rate by only 0.25%, stating the need to balance “the interest of its customers with the commercial imperative of managing its business in a sustainable and prudent fashion.”