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At last: Banks act fast on mortgage cut
Joe Murphy, Political Editor7 Feb 2008
Homeowners won a desperately needed boost today as banks promised to pass on in full a quarterpoint cut in interest rates.
Within seconds of the Bank of England announcement, Halifax, Abbey, Royal Bank of Scotland/NatWest and the Nationwide building society said they would cut standard variable rates by 0.25 per cent.
Lloyds TSB, Barclays, HSBC and first direct had already said they would mirror the Bank's decision.
A family with a £200,000 mortgage should be £32 a month better off. The big banks acted after coming under attack for failing to pass on previous cuts in full.
The Bank of England's monetary policy committee cut the base rate from 5.5 per cent to 5.25 per cent today.
But there was also a grim warning that economic conditions are getting worse. In a statement released at the same time as the cut, the Bank said there were dangers of slower growth or higher inflation: "Business surveys suggest that further slowing is in prospect. These developments pose downside risks to the outlook for inflation."
Shadow chancellor George Osborne said the overall economic news looked tough. "Given the gloomy economic news and the rising cost of living, millions of homeowners who are struggling thanks to Brown's economic incompetence will welcome this news," he said.
Gordon Brown has said lenders have a "duty" to pass on interest rate cuts to borrowers.
Typical homeowners could now see their variable mortgage rate fall to 7.25 per cent, cutting the cost of a £100,000 mortgage by about £16 a month to £722.80.
Londoners with a big £250,000 loan could save £40 a month to counterbalance rising spending on petrol, gas and electricity bills. Oil prices surged to record highs this year and power firm E.ON today became the latest to increase gas and electricity prices. Today's rate cut was in line with City expectations but a disappointment for those hoping the Bank would opt for a full half-point cut to five per cent. The US Federal Reserve slashed American rates by 1.25 per cent in less than two weeks in an attempt to stave off a recession.
In Britain, the nine-strong monetary policy committee made its move after signs the housing market is cooling amid a global credit crunch. In its statement it said both families and firms were feeling the pinch: "The prospects for output growth abroad have deteriorated and the disruption to global financial markets has continued. In the UK, credit conditions for households and businesses are tightening.
"Consumer spending growth appears to have eased."
The Bank said it was trying to strike a balance between risking a sharp slowdown and being too soft on abovetarget inflation. The pound edged down during the morning after industrial output showed another fall. Liberal Democrat t reasury spokesman Vince Cable said: "This is welcome news for the many people who have found themselves overstretched and struggling to meet mortgage and loan repayments.
Reader views (1)
I have no problem with the BoE if it is saying that a deceleration in house price growth would weaken the economy and that would therefore lower inflationary pressures in the future.
If the BoE ever thought that an acceleration in house price growth would strengthen the economy and that would therefore raise inflationary pressures in the future.
Mervyn King talking tough on inflation a few weeks ago in the media was for consumers (don't want workers building inflation expectations into wage bargaining do we), while I had no doubt that the City/govt. friends would be kept happy with a rate cut (I would say talking tough earlier was part of the same strategy/preparation).
This is not 2005. We have higher debt levels. Then rates fell from 4.75% to 4.5% and banks were charging less anyway because of cheap debt markets i.e. they were less responsive to BoE rates going up or down. Now they are falling from 5.75% to probably 5% and debt markets will not be as cheap for years i.e. banks are less responsive to rates falling.
On top of that inflation is back, the govt. has no money to create jobs, most people could not get any more debt even before the crunch as they had so much by mid-2007...most are kidding themselves that all will be better if we can just sort the crunch part out (some think it already has been, but there are many layers of debt yet to get through) or that we do not have subprime (the US includes high multiples as subprime, we call them self-certified).
- Raj, UK, 07/02/2008 14:48
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