Many lenders ignore base rate cuts
An industry official has expressed concern that the Bank of England is effectively losing control of retail interest rates, stating that the recent base rate cuts by the central bank have often gone ignored by lenders, who have continued to raise their interest rates despite the base rate cut. Since December there have been three cuts in the base rate, taking it from 5.75% to 5%, but many lenders have continued hiking up the interest rates on borrowing such as mortgages, personal loans, and credit cards.
Following one of the recent base rate cuts the industry official stated: ‘Today’s decision is irrelevant as far as pricing for mortgage borrowers is concerned. The Bank has effectively lost control of retail interest rates, which have become decoupled from the base rate.’
He went on to state: ‘Any change in the Base Rate is likely to have little or no impact on the cost of raising funds for lenders. Together with the need to control demand this cost will continue to dominate retail lenders’ pricing decisions.’
Many lenders say that they have been forced to put up interest rates as a result of the increased costs and difficulties involved in getting funding on the wholesale markets, with inter-bank lending having become far more difficult as a result of the global credit crunch. However, some industry officials state that lenders are now undermining the Bank of England by not moving their mortgage interest rates in line with the central bank, and that this could result in the central bank no longer being able to control retail interest rates, which will have a knock on effect on the economy.
The base rate remained at 5% in May, but many economist now expect a further rate cut in June, although the effects may be mixed due to lenders’ reactions to the latest rate cuts.
Recent additions:
- Mortgage approvals slumped in March
- Credit crunch means slump in mortgage lending
- Could you be entitled to a break in monthly mortgage repayments?
- Nationwide asks for larger deposits from borrowers
- Mortgage lending levels remain subdued
Related Posts
Households could save thousands if rate cuts go ahead
There has been a great deal of speculation over when and by how much the Bank of England will cut the base interest rate over the next year, with inflationary pressures coupled with the threat of recession making decisions challenging for the Monetary Policy Committee. A number of industry officials have now said that the state of the economy will result in the central bank cutting rates a number of times over the next twelve months, with some guessing that the base rate could fall to 3.5% next year.»
Further rate cuts may be put on hold for this year
In a recent speech the governor of the Bank of England, Mervyn King, said that there was a good chance that any further interest rate cuts for the remainder of this year would be put on hold, with the central bank now concerned that the soaring rate of inflation is getting more and more out of control. Despite the state of the economy, with many concerned that the nation is on the brink of recession, the governor has indicated that there could be no further interest rate cuts this year.»
Homeowners will not necessarily benefit from rate cuts
Recent reports have indicated that despite the base rate cuts that have been applied by the Bank of England over the past few weeks some homeowners may not actually benefit from these reductions, as many lenders have not passed the rate cuts on. The central bank is expected to cut rates further next year, but some feel that many of the major UK banks will ignore the reductions and fail to pass them on.»
Base rate stays the same for June
Earlier this month the Monetary Policy Committee met for its monthly meeting in order to discuss the base rate, and it was decided following the meeting that the base interest rate would be kept on hold at 5%. The base rate was last cut in April, following two earlier rate cuts. However, despite concerns over the slowing economy and the effects of the global credit crunch on consumer finance and confidence the Bank of England decided to focus more on rising inflation levels, thus deciding to keep the base rate at 5%. »
Is the UK heading for recession?
The word recession is one that strikes fear into the hearts of many, particularly those that remember the dark days of the late 1980s and early 1990s. However, over recent months the nation has seen financial markets dry up, house prices plunge, credit conditions become increasingly tight, inflation levels soar, and consumer confidence dwindle. It is therefore little wonder that so many people are convinced that the country is on the brink of recession. With households facing their toughest time in years when it comes to finances many people are unable to spend freely, which is affecting the economy. »
One Comment
Leave a comment »Leave a comment
More from Mortgage News category
Ads and sponsors
[...] Many lenders ignore base rate cuts [...]