The recent Bank of England interest rate cut comes as cold comfort to millions of homeowners who saw their mortgage payments rise in the weeks before the reduction, as UK banks and building societies are struggling in the wake of the global credit crunch.

According to financial services experts recent interest rate reductions have not been passed onto customers because lenders need to increase their liquidity to stave off the effects of the credit squeeze. That strategy is forcing many homeowners to frantically find ways to lower mortgage payments until the banks can finally afford to pass on the benefit of base rate cuts to their customers.

More bad news from industry experts is that most of the 11.8million British mortgage holders are unlikely to see any benefit even if the base rate falls yet again. Despite a quarter per cent cut in base rates in December, some banks and building societies in the UK have been forced to increase the rates on some of their mortgage products in an effort to raise their liquidity ratios. The further quarter per cent cut in February is likely to have little impact either as banks continue to struggle.

The base rate was last at 5.5% in May 2007 and when the Bank of England performed a mortgage comparison between headline rates then and in December, it found that May had the cheapest mortgages. The average mortgage interest rate in May was 5.66 per cent, however in December the figure was significantly higher at 5.93 per cent. That represents a £34 increase in monthly repayments for someone on an average interest-only mortgage of £150,000, pushing the monthly cost up to £741.25.

Given the higher cost of mortgages the natural thought of many homeowners is turning to ‘how do I lower my mortgage payment?' and many will be bewildered that despite a drop in base rates the cost of their mortgage has risen. Even the best mortgages currently on the market are more expensive than several months ago, and fixed rate products also cost considerably more.

So, in an effort to reduce the cost of their mortgage repayments borrowers are seeking to shift their mortgage to another lender, but as most banks and building societies have increased prices it can be frustrating and time-consuming searching for a better deal. As a result many homeowners wishing to compare mortgages in order to get a better rate are turning to comparison sites on the internet. The technology behind them allows many different products to be compared in seconds and offer the best alternatives to the enquirer and many homeowners hope to be able to save money, despite the currently financial climate.

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