Falling base rates fail to sway mortgage costs

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The Independent Online

Bank of England figures on benchmark interest rates paid by households indicate that some rates are barely changed from where they stood a year ago, despite the base rate falling to 0.5 per cent.

For example, the rate charged on a 5-year fixed rate mortgage with a 75 per cent loan-to-value ratio was 5.84 per cent this time last year; it is now 5.68 per cent.

Spreads over market rates have also widened. Michael Saunders, economist at Citigroup said: “Over the last two years, the average rate on a £10K personal loan is up by 3.2 per cent to the highest since 2002, when the Bank policy rate was 4 per cent. The average overdraft rate is up by 1.24 per cent over the last two years to a record high, hitting consumers as well as self-employed people using overdrafts as short-term financing.”

Colin Ellis, of Daiwa securties added: “These figures tell us a lot about the transmission of quantitative easing to the real economy. While some market interest rates have fallen - two-year swap rates are currently down almost 0.5 per centage points since the start of March - household interest rates have not.

“And even if it does feed through in the months ahead, we are still uncertain just how willing households will be to borrow and spend more, while they are busy shoring up their balance sheets.”

The news will further fuel the row over the banks’ willingness to lend on reasonable terms to businesses and homebuyers.

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