Halifax, one of Britain’s biggest mortgage lenders, is threatening to deprive as many as 500,000 homeowners of further rate cuts because of a sneaky clause in their contracts.

Millions of homeowners cheered the Bank of England’s 1.5 percentage-point cut in official interest rates to 3% last week — worth more than £4 billion to the 2.5m borrowers with tracker mortgages, or £166 a month on a typical £200,000 loan.

However, those with Halifax trackers may not benefit further since it reserves the right to impose a 3% “collar” on trackers so it does not have to pass on rate cuts when Bank rate falls below that level.

The clause, which also applies to Halifax brand BM Solutions but not Intelligent Finance, could be in breach of the Financial Services Authority’s rules, which state that collars must be highlighted clearly in mortgage documents — and brokers claim Halifax has failed to do this.

MPs have urged Halifax to drop the condition, after it emerged that withholding a cut of just 0.25 percentage points would deprive customers of as much as £140m.

Michael Fallon, Conservative vice-chairman of the Commons Treasury committee, told The Sunday Times: “These types of clauses are redundant in the new era of the low rate — there’s no excuse for them.”

Halifax initially played down its intention to rely on the clause, saying it had “no appetite” to withhold Bank rate cuts. Last week, though, it said it might invoke the clause after all. “It is . . . important to recognise that all banks have a need to balance savers’ and mortgage borrowers’ rates.”

Halifax is not the only lender to reserve the right to impose such a condition — although brokers regard its collar as being exceptionally harsh.

For example, a tracker with a margin of 1% above Bank rate would cost 4% even where Bank rate falls to 2.75%. Then, if Bank rate rises, Halifax reserves the right to pass on the rise and charge 4.25% to the borrower, rather than 3%. Ray Boulger of John Charcol, the broker, said: “This is a blatant double standard. Nationwide has an automatic 2.75% collar on all of its trackers but it will not pass on rate rises where it has declined to pass on rate cuts.”

Darlington building society slapped a 4.5% collar on its trackers this year — despite the prospect of big cuts to rates — so unlucky customers who took out those deals will not benefit from the last rate cut. Chesham building society customers will also miss out, as it has a 3.5% collar.

Skipton, Yorkshire, Norwich & Peterborough, and Scarborough building societies, as well as Accord, have a 3% collar.

If Halifax invokes its collar, customers have the option to switch to another mortgage without penalties, although they would have to move to much higher rates.Halifax said: “We are happy to review as necessary.”

The bank, which stands to receive £11.5 billion in taxpayer funds, has come under fire for charging increasingly high margins on loans. Two years ago, its average two-year fix at 5.3% was cheaper than the cost of funding, which was 5.32%. Last month, the average cost of funding was 4.67% but its average two-year fix was 5.7%, Moneyfacts said — a 1.03-point mark-up.

What it means for borrowers

Will I benefit on a variable mortgage?

About 29% of existing borrowers, or 2.5m people, are on trackers and should benefit — unless their lenders apply collars.

Another 16% of existing borrowers are on deals linked to the lender’s standard variable rate. While Nationwide, Halifax, Abbey and Cheltenham & Gloucester have said they will pass on the full 1.5-point rate cut to borrowers on their SVRs, HSBC said it may not. Woolwich and Royal Bank of Scotland have so far not committed to cutting their SVR.

I’m coming up to remortgage. Will the cost of new loans come down?

Yes. Not only has Bank rate come down, but the cost of funding loans in the interbank markets has also fallen sharply. Lenders had been blaming high funding costs for keeping mortgage rates high.

However, several lenders, including Northern Rock and the big high-street banks, pulled their trackers last week, and indicated they will come back in with higher rates. Fixed-rate deals, on the other hand, are getting cheaper as the cost of funding (swap rates) fell from 4.22% to 3.6% last week — but the best deals are available only with at least a 25% deposit.

So what’s the outlook for rates. Should I fix or track?

Deutsche Bank economist George Buckley predicts Bank rate will fall to 1.5% next year, while Vicky Redwood of consultancy Capital Economics expects it to be at 1% by the end of 2009. The best tracker, from HSBC is at 3.99%; the best fix, from Woolwich, is at 4.99% for two years.

I’m not due to remortgage until next year. What should I do?

Markets may be looking ahead to rate rises by the middle of next year, meaning mortgage deals may be getting more expensive — although you can book three months in advance.

If house prices have fallen further, as expected, some homeowners may no longer have sufficient equity — most of the best deals are available if you have at least 25% and sometimes 40%. Brokers therefore recommend using the savings from last week’s rate cut to pay off some of your debt.