Base rate cut could boost mortgage market
on: November 18, 2008, 10:15 am
Release Author: Melanie Taylor
Release Summary: Financial solutions company Think Money have
welcomed the Bank of England’s shock base rate cut to 3%,
commenting that the mortgage market could benefit as a result
– but also warned that some lenders may be slow to pass
on the base rate cut due to the continued uncertainty surrounding
the mortgage market.
Release Body: Following the Bank of England’s shock base
rate cut to 3%, financial solutions company Think Money
have welcomed the news, commenting that firm action is more likely
to encourage banks to consider cutting their interest rates accordingly.
However, they added, there are still some factors that may prevent
lenders from passing on the full 1.5% cut to their mortgages
base rate cut, from 4.5% to 3%, is the biggest cut since the Bank
of England lowered the rate by 2% in 1981. The base rate now stands
at its lowest point since 1955.
economists had predicted an aggressive cut in base rates, but
the extent of the cut was still unexpected. Most predictions in
the run-up to the Bank of England’s announcement pointed
towards a 0.75% or 1% base rate cut – and only a few days
previously, 0.5% seemed a more realistic figure.
spokesperson for financial solutions company Think
Money said: “It would seem that the Bank of
England are acting based on Mervyn King’s recent statements
that the recession would be long and drawn-out, and rather than
take the base rate down in small increments, they have ‘bitten
the bullet’ and taken it down further than most people expected.
it’s very good news for people and businesses looking for
loans, but not such good news for savers.”
the spokesperson stressed that as with previous base rate cuts,
there is no guarantee that lenders will pass the full cut onto
their mortgages and loans – although the extent of the cut
could at least increase the impact on lenders’ behaviour.
will still be a lot of uncertainty with regards to what will happen
in the economy in the future, as well as some apprehension amongst
banks as to how much they might lose from things like defaults
as the recession takes hold,” she said.
base rate cut only affects how cheaply lenders can borrow funds
from the Bank of England. It does not directly affect the LIBOR
rate, which is the measure of how expensive inter-bank lending
is. Since lenders rely heavily on borrowing from each other to
fund their loans and mortgages,
they may well be slow to bring their rates down.
said, the Bank of England will have no doubt had this in mind
when deciding on their base rate cut – and it may well be
that such a large cut is sufficient to encourage some lenders
to bring their rates down to more competitive levels.”
a number of banks appeared to take defensive action even before
the 3% base rate had been announced, with several lenders removing
from their product ranges on Wednesday and Thursday morning, while
others upped their interest rate margins on tracker mortgages.
may just be a temporary measure by lenders in order to avoid any
risks in the short term,” the Think
Money spokesperson said. “A number lenders
have said they will be taking some time to think about their next
step, so it’s possible that we will still see some significant
interest rate cuts in the next week or two.”
spokesperson was also keen to emphasise the importance of good
mortgage advice. “With so much uncertainty surrounding what
will happen with mortgage rates in the next few months, it often
pays to speak to a mortgage adviser who understands the market.
They should be able to point you towards the best mortgage deals
for your circumstances, which could save you a lot of money in
the long run.”
Resources for editors:
Mortgage site: http://www.thinkmoney.com/mortgage/
Remortgage page: http://www.thinkmoney.com/mortgage/remortgage.asp
Bank of England website: http://www.bankofengland.co.uk/
South Langworthy Road,