HOMEOWNERS were warned last week the Bank of England’s £50 billion bail-out for banks was unlikely to lead to lower mortgage rates, at least in the short term, writes Elizabeth Colman. We answer your questions.

What is the Bank of England offering? It is offering to swap up to £50 billion or more of residential mortgages on lenders’ books for gold-plated government bonds.

Banks have been hoarding cash to shore up their balance sheets, instead of lending. This has caused a wholesale lending freeze and sent mortgage rates soaring. If lenders have “safe” government bonds on their books rather than risky home loans, banks should be more willing to lend. This should bring rates down.

What does this mean for homeowners? Unfortunately, there is little in the Bank’s announcement that will change the lending freeze in the short term as banks and building societies have not committed themselves to reducing mortgage rates.

The Council of Mortgage Lenders said: “We will have to wait and see. Lenders will have to try to use the government bonds to raise funds and this will in part determine whether they can start offering cheaper loans, and by how much. We can’t say how long this will take.”

What should first-time buyers do? First-time buyers are in the unenviable position of having to come up with at least a 10% deposit, if not more, if they want a decent rate. Halifax offers a rate of 6.25% on a two-year fix for borrowers with a 25% deposit, but for those with a 10% deposit, the best rate on a two-year fix is 6.99%. The exception to this is Bradford & Bingley’s two-year fix at 5.59% with no fee.

However, experts said this was unlikely to last long.

With house prices still predicted to fall by up to 20%, first-time buyers need to choose their home wisely to avoid falling into negative equity.

What is available for remortgagers? If you are one of the millions of borrowers whose deal expires in the next six months, start looking for a new one now – especially if seeking a tracker loan, where rates are more dependent on wholesale money markets.

Fixed rates may come down as official interest rates fall. Economists predict at least another two rate cuts this year.

The best fixed rates are available over three and five-year terms. HSBC has a five-year fix at 5.39% with a fee of £999 for purchases and remortgages, requiring a deposit of 10%.

A two-year tracker from Cheltenham & Gloucester is at 5.64% with a fee of £1,094.

Explore Money

• Property & Mortgages

• Savings

• Borrowing

• Investment

• Funds

• Insurance

• Consumer Affairs

• Tax

• Pensions

• Broadband