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Lenders urged to credit borrowers on trackers below the base rate

Borrowers on tracker deals lower than the base rate should have their mortgage accounts credited by lenders, says industry pundit Ray Boulger.

As the base rate edges close to zero, some borrowers with rates below base are in the enviable position of being owed mortgage payments by their lenders.

Lenders have so far dismissed the idea of paying borrowers but Boulger, senior technical manager at John Charcol, says this is unfair.

He says: “Borrowers with low tracker rates will have effectively paid for them with high upfront fees so if lenders aren’t honouring their deals, they are treating customers unfairly.

“If lenders were to credit mortgage accounts it would give borrowers more value and save money on complaints that would otherwise go to the Financial Ombudsman Service.”

His recommendation comes amid a shake-up of monetary policy by the Bank of England.

On top of cutting the base rate cut to 0.5%, the Bank has taken the unprecedented step of purchasing £75bn worth of assets to boost money supply.

Chancellor Alistair Darling has given the go-ahead for the Bank to buy up to £150bn worth of assets as it runs out of ammunition in the battle to get lending flowing again.

Outlining the Bank’s proposals in a letter to Darling, Bank governor Mervyn King says: “This would provide scope for the monetary base to be expanded. It would also boost the supply of broad money and credit and increase the liquidity of private sector portfolios, thereby raising nominal spending.”

The mortgage industry has largely commended the measures, technically known as quantitative easing, as it accepts that the Mone-tary Policy Committee is running out of options.

Ben Thompson, director of mortgages at Legal & General, says: “We are so far into uncharted waters that King must feel like Captain Cook. Few people know what to expect from quantitative easing and nobody knows how long the base rate will stay this low.

“Let’s hope the proposed injection of lending from Northern Rock and other banks has the desired effect and we can move on, following the introduction of the government’s Asset Protection Scheme.”

Vince Cable, shadow chancellor for the Liberal Democrats, says: “The Bank has run out of conventional weapons to fight the recession. Even with the base rate at a record low the banking system is in chaos. Increasing the amount of money flowing into the economy is now the only option.

“But the government must be careful that this kind of radical action does not turn deflation into high inflation.”

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