The ERM Crisis: Interest Rates: Cost of mortgages in Britain set to fall

THE cost of borrowing for Britain's 10 million mortgaged homeowners could soon fall as the imminent collapse of the exchange rate mechanism paves the way for a reduction in domestic interest rates.

David Gilchrist, general manager of Halifax Building Society, said: 'We would like to see another reduction in interest rates. Inflation will remain at a low level so real rates of interest are still very high. If there is a cut in the base rate we would bring the mortgage rate down.'

Rates on fixed-rate mortgages - which are funded from the wholesale money market - have been falling in recent weeks, heralding a general cut in interest rates.

However, future cuts in the standard cost of home loans could be token gestures aimed at boosting confidence in the housing market rather than cutting monthly payments by a meaningful amount. The basic mortgage rate, at 7.99 per cent, is already at a 25-year low.

Borrowers cannot necessarily expect to see the cost of mortgages fall by the full amount of any base rate cut. Lenders are likely to follow the pattern set over the past year of delaying mortgage reductions for a month or more and by trimming rates by less than the full amount in order to restore profit margins.

Abbey National, the second largest lender after Halifax, said yesterday that it did not expect to pass on the full base-rate cut.

Margaret Schwarz, senior economist at Abbey, said the savings market was too competitive for the bank to be able to afford this.

Nationwide Building Society announced yesterday that it is to cut rates on its savings accounts by an average of 0.3 points from tomorrow. The society said this was an adjustment to bring its rate into line with those of other societies.

Nationwide said margins were under pressure and the only alternative would have been to raise mortgage rates further. However, it did not rule out another cut in mortgage rates or savings rates if the base rate moves again.

Brian Davis, operations director at Nationwide, said: 'If the base rate is cut we will have to think again. If it was cut by more than a half of a percentage point it would be surprising not to reduce the mortgage rate a little.'

A half-point cut in the standard mortgage rate reduces payments on the average 25-year repayment mortgage of pounds 33,000 by about pounds 8 a month.

Lenders believe that another cut in mortgage rates, however small, would help to instil confidence among homeowners and is the key to recovery in the housing market.

Earlier this week, figures released by the Council of Mortgage Lenders showed that lenders are still repossessing homes at the rate of more than 1,200 a month and nearly 350,000 people are behind with their mortgage payments by more than six months.

Lenders have had little success in stemming the tide of repossessions through mortgage rescue schemes. Interest-rate cuts have been more beneficial.

Adrian Coles, director general of the Council of Mortgage Lenders, said: 'Another interest-rate cut would be welcome for the housing market. It has a significant impact on the overall amount of interest paid. It would assist further in reducing the number of possessions and arrears.'

Mr Coles said that the 2.75 percentage point cut in mortgage rates since Britain left the ERM last September had saved homeowners an annual pounds 10bn. Money, page 22

Arts and Entertainment
Sydney and Melbourne are locked in a row over giant milk crates
art
News
Kenny Ireland, pictured in 2010.
peopleActor, from House of Cards and Benidorm, was 68
News
A scene from the video shows students mock rioting
newsEnd-of-year leaver's YouTube film features staging of a playground gun massacre
Travel
travel
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Voices
A family sit and enjoy a quiet train journey
voicesForcing us to overhear dull phone conversations is an offensive act, says Simon Kelner
News
i100This Instagram photo does not prove Russian army is in Ukraine
News
Morrissey pictured in 2013
people
Sport
sportVan Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Environment
View from the Llanberis Track to the mountain lake Llyn
Du’r Arddu
environmentA large chunk of Mount Snowdon, in north Wales, is up for sale
Life and Style
Martha Stewart wrote an opinion column for Time magazine this week titled “Why I Love My Drone”
lifeLifestyle guru Martha Stewart reveals she has flying robot... to take photos of her farm
Arts and Entertainment
The Secret Cinema performance of Back to the Future has been cancelled again
filmReview: Sometimes the immersive experience was so good it blurred the line between fiction and reality
News
i100
Life and Style
The director of Wall-E Andrew Stanton with Angus MacLane's Lego model
gadgetsDesign made in Pixar animator’s spare time could get retail release
News
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Environment
Tyred out: should fair weather cyclists have a separate slow lane?
environmentFormer Labour minister demands 'pootling lanes' for women cyclists
News
people
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

VB.Net Developer - £40k - Surrey - WANTED ASAP

£35000 - £40000 per annum + competitive: Progressive Recruitment: .Mid Level V...

Digitakl Business Analyst, Slough

£40000 - £45000 per annum + Competitive Benefits: Progressive Recruitment: Dig...

Mechanical Estimator: Nuclear Energy - Sellafield

£40000 - £50000 per annum + Car, Medical, Fuel + More!: Progressive Recruitmen...

Dynamics NAV Techno-Functional Consultant

£50000 - £60000 per annum + benefits: Progressive Recruitment: An absolutely o...

Day In a Page

Dress the Gaza situation up all you like, but the truth hurts

Robert Fisk on Gaza conflict

Dress the situation up all you like, but the truth hurts
Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

In grandfather's footsteps

5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

Martha Stewart has flying robot

The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

Do women cyclists need 'pootling lanes'?

Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

The dining car makes a comeback

Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

Gallery rage

How are institutions tackling the discomfort of overcrowding this summer?
Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

Eye on the prize

Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

Women's rugby

Tamara Taylor adds fuel to the ire in quest to land World Cup
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices