Building societies call for interest rate freeze

The building society trade association yesterday called for the Bank of England to resist the temptation of cutting interest rates on Thursday as doing so would penalise savers and pensioners, while borrowers are more preoccupied with loan availability than the level of interest payments.

The Bank of England is expected to cut interest rates by a half a percentage point to 1 per cent this week, in an effort to relieve the worsening economy. But successive rate cuts since last year, while aimed at benefiting borrowers, have left savers earning less and less on their cash.

“The cuts in interest rates have had a severe impact on savers,” Adrian Coles, Director General of the Building Societies Association, said. “This drop in income is particularly serious for pensioners who have saved all their lives and now face a sharp reduction in their income and living standards.”

Pensioners and savers have already lost three quarters of their savings income through rate cuts since the failure of Northern Rock in late 2007, said the BSA.

The organisation added that the number of borrowers it polled who consider affording mortgage payments to be a barrier to buying a home had fallen to 37 per cent in December from 70 per cent in June.

“So mortgage availability, rather than the cost of mortgages, has become a more pressing issue over the last few months,” said Coles. “This suggests that what is important to potential borrowers is maintaining the flow of mortgage funds to the market rather than reducing interest rates further.”