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Home loans sting as rate is cut
Jonathan Prynn, Consumer Affairs Editor10 Apr 2008
The Bank of England today cut its base rate by 0.25 per cent to 5 per cent to stop the economy's slide towards recession.
But relief for home owners was instantly undermined by a new wave of mortgage rate increases from Britain's biggest lenders.
It was the third cut in the Bank's base rate since December and will help home owners on tracker and variable rate mortgage deals.
However, for millions of borrowers with cheap fixed-rate mortgages that are due to expire this year, today's move will bring little cheer. Nationwide and Alliance & Leicester have joined the roll call of lenders pushing through big increases of up to 0.35 per cent in their fixed-rate offers - despite the fall in base rates.
For Alliance & Leicester it was the second increase in a week, while Nationwide last raised its prices just a fortnight ago. Rates in the City money markets where lenders obtain most of their money stayed stubbornly close to 6 per cent - now a full percentage point above the Bank's base rate.
Liberal Democrat T reasury spokesman Vince Cable said: "A quarter per cent cut in interest rates seems like welcome respite for the millions of households struggling to meet mortgage repayments. However, the reality is that this will make little, if any, difference for the vast majority of people.
"Despite having already seen two interest rate cuts from the Bank of England in the last few months, most lenders have actually increased their mortgage rates.
"Before mortgage and loan rates can fall, banks must first come clean about the full extent of the bad assets they hold. This is the only way to restore trust in the market and bring down the costs of inter-bank lending."
Ann Robinson, director of consumer pol icy at comparison website uSwitch.com, said: "While the base rate reduction provides light relief for some, first-time buyers and those set to come off a fixed-rate mortgage could be forgiven for not performing cartwheels at the news.
"Many lenders are yet to pass on the recent base rate reductions - instead they are busy increasing rates, demanding larger deposits, tightening lending criteria and, in some cases, withdrawing deals from the market altogether. Today's move will help the estimated six million mortgage-holders who are on variable or tracker rates, which move in line with the base rate. For home owners with a £200,000 mortgage it will save more than £30 a month. Most ot the big lenders, including Halifax, Nationwide, the Woolwich, Cheltenham & Gloucester and First Direct also said within minutes of the Bank's announcement that they will be cutting their standard variable mortgage rates by the full 0.25 per cent.
However, other lenders including Abbey, Alliance & Leicester, HSBC and the Royal Bank of Scotland Group, which includes NatWest, did not make an immediate decision, instead saying their rates were under review. Both Nationwide and Alliance & Leicester are believed to have been overwhelmed by applications from borrowers coming off cheap fixed deals and want to choke off the demand.
A spokeswoman for Nationwide said: "We are keen to maintain a prudent and sustainable lending strategy."
Nationwide's increase today followed similar moves from Woolwich and Alliance & Leicester yesterday and Halifax and Abbey before that.
In its statement today, the Bank of England said the risks of stoking up inflation were outweighed by the threat to economic growth. It said the slowing economy and "the disruption in financial markets" will pull inflation back down below its target rate of 2 per cent. The Bank's Monetary Policy Committee is also likely to have been influenced by this week's figures from the Halifax showing a 2.5 per cent monthly fall in property prices.
Property commentators said the Bank's move was welcome but not enough to restore confidence.
Nicholas Leeming, major client director of website propertyfinder.com, said: "Intervention on a larger scale is necessary."
Reader views (2)
If you don't like it and you're not locked into your mortgage then move, certain building societies are doing very reasonable rates currently, you are the customer, if they don't want your money then take it elsewhere.
- Robin Banks, London, 11/04/2008 10:56
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At last! Surely it is obvious that a remedy for the problems of easy money at low interest rates is even more easy money at even lower interest rates. The last thing the BofE need worry about is inflation.
- Len Moss, Brighton, England., 10/04/2008 14:48
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