More than 4m borrowers with tracker mortgages will see repayments fall again following last week’s reduction in Bank rate — but lenders are still making an estimated £120m a month because of excessive margins on new mortgages

Last week’s 0.5 percentage-point cut to 1.5% shaves £48 a month off the cost of a £200,000 tracker — from £905 to £857 a month — said broker Savills.

Some lucky Cheltenham & Gloucester (C&G) borrowers who took out a home loan at 1.01% below Bank rate will pay as little as 0.49% in interest.

However, lenders are still profiteering at the expense of new borrowers. The average two-year tracker stood at 4.51% last week, according to data firm Moneyfacts, even though Libor, the rate at which banks fund trackers in the money markets, has dropped to 2.5%. Even the best, from HSBC, is at 3.95% with a 40% deposit. With 32,600 trackers sold a month at a value of £5.95 billion, lenders are boosting their margins by a huge £120m a month — or £1.4 billion a year.

I have a tracker, will it come down?

Yes, unless you’re with Nationwide, Norwich & Peterborough or Skipton building societies. Existing Nationwide customers have a 2.75% collar, although it decided to waive it when Bank rate fell to 2% in December. It is now imposing it at 2%. New borrowers have a 1% floor.

Yorkshire, Norwich & Peterborough and Skipton have a 3% collar.

Could my mortgage go below zero?

C&G borrowers with deals that are 1.01% below Bank rate could find themselves in this situation if Bank rate goes down to 1%.

C&G, owned by Lloyds, has said in this case borrowers would pay no interest but would continue to make capital repayments.

I’m on an SVR. Will I benefit?

Fewer than 8% of borrowers, or 1m people, are on standard variable rates. Halifax and RBS say SVR customers will see a cut of just 0.25 points. C&G, HSBC and Nationwide passed on the full cut.

What should I do if I fixed?

In some cases, it may be worth paying a penalty to get out. Work it out at www.lcplc.co.uk.

Fix or tracker?

Ray Boulger of broker John Charcol said: “Fixes still look expensive and trackers with no fees and no collar remain the ideal mortgage product.”