Lenders 'review' rate cuts
Thursday 05 March 2009
Mortgage costs came down for tracker customers again today but few borrowers on standard variable rates are expected to benefit from the latest interest rate cut.
Lloyds TSB, Nationwide, Halifax, and Skipton Building Society all said they would be passing on the reduction in full to people on their SVR, while Abbey is reducing its rate by 0.45%.
But four of the groups pledge that their SVR will never be more than a set percentage above the base rate, leaving them little choice but to reduce it, while Abbey failed to pass on any of February's cut to its SVR borrowers.
Other lenders sat on their hands, saying their rates were "under review" following the latest 0.5% cut, which reduced the base rate to a new record low of 0.5%.
Banks and building societies have warned that they need to balance the needs of their borrowers with those of their savers, whose deposits they need to fund mortgage lending.
There are fears that the latest reduction will encourage savers to withdraw money from deposit accounts in a bid to find higher returns, further restricting the supply of funds available to banks and building societies.
Michael Coogan, director general of the Council of Mortgage Lenders, said: "This latest cut presents immense challenges for lenders whose margins are already squeezed as a result of previous reductions, leaving little scope to lower discretionary mortgage rates further.
"Savings are the lifeblood of mortgage lending, and unless lenders can offer competitive rates to savers their ability to offer new mortgages is restricted."
It is doubtful that today's cut will do much to support the ailing housing market, as it is unlikely to be passed on to new borrowers.
Gary Smith, vice president of the National Association of Estate Agents, said: "Interest rates can go down to 0% and I'm afraid it will make absolutely no difference.
"What is desperately needed now is more liquidity in the market and more mortgage lending.
"Reducing rates does nothing to boost confidence of savers and does nothing to help those that the banks are refusing to lend to. What we need is an increase in the number of mortgages available at sensible rates with limited deposits."
The majority of borrowers on SVRs are also unlikely to see their mortgage repayments falls.
Only a third of lenders passed on any of February's cut to their SVR borrowers and even fewer are expected to do so this time.
But around four million people with tracker mortgages should automatically benefit from the reduction.
A 0.5% cut reduces the monthly cost of a £150,000 mortgage by around £40, bringing the level of savings seen since the beginning of October to nearly £400 a month or more than £4,700 a year.
For people who are heavily mortgaged with a £250,000 home loan the reduction is even more dramatic, with total monthly savings rising by £65 to £657 since October, reducing mortgage repayments by a total of £7,880 over the course of a year.
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