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Most of Britain's homeowners would never have dreamed that they could be paid for taking out a mortgage, but with the Bank of England preparing to cut borrowing costs today to their lowest level ever, lenders may have to cope with zero interest rates.
If, as many analysts expect, the Bank of England cuts rates by a full percentage point to just 1%, those with loans that track a point below base rate will find themselves paying no interest. Several thousand who took out a two-year tracker in 2007 with Cheltenham & Gloucester, an arm of Lloyds TSB, set at 1.01 points below base rate will, in theory at least, be owed money.
While C&G does not have restrictions on the tracker product, it says it will not allow the interest rate to sink below 0%, citing documentation accompanying the mortgage which only mentions interest paid by the customer.
The Financial Services Authority has warned lenders about the fairness of their mortgages as interest rates plunged. Ray Boulger, of mortgage broker John Charcol, said the FSA's stance on the C&G product would be a test case which could affect hundreds of thousands more borrowers who have trackers set below the base rate.
A spokesman for the FSA said: "We do require firms to make their terms clear and unambiguous to the customer." By the end of next week, Lloyds is due to take over HBOS and in turn be 44% owned by the taxpayer. It can expect little sympathy from its new part-owner. One Whitehall source said: "If they've made a contract, they'll have to pay up."
The low interest rates pose challenges for the already embattled banking sector, eating into the profits banks can make on the difference between the savings rate paid to customers and the return they get on investing the funds.
C&G's dilemma is just the first of the tough decisions facing savers, consumers and policymakers. As the Bank nears what economists call "Zirp" - a zero interest-rate policy - the boundaries between monetary policy and fiscal policy, and the roles of the Bank and the Treasury, become blurred.
If the Bank moves, as many expect, to "quantitative easing" - increasing the amount of cash in circulation - it is likely to mean putting large amounts of taxpayers' money at risk, and that requires Alistair Darling's agreement.
In the United States, where the Federal Reserve has slashed borrowing costs to an unprecedented 0-0.25%, Fed chairman Ben Bernanke is spending billions of dollars of public money buying up unwanted corporate debt.
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