Rate cut is lifeline for borrowers

While homeowners may have welcomed last week’s 0.25% cut in basic rates, lenders appear to be less enthusiastic.

UK homeowners feeling the pinch as their 2/3 year cheap and discounted mortgage were handed a lifeline as the Bank of England’s Monetary Policy Committee announced a 0.25% cut in base rates to 4.5%.

The rate cut has led to some lenders moving quickly to cut their mortgage rates by the same amount, meaning savings of around £20.50 a month on a typical £100,000 interest-only loan.

Among those to benefit are the 20% of the UK’s borrowers on “tracker mortgages” i.e. Loans that rise and fall in line with basic-rate movements. These UK mortgage customers will see the cost of their monthly repayments fall from next month.

Intelligent Finance, part of the HBOS banking group, was among the first to announce a cut in their mortgage rates. Halifax will also follow suit, cutting the cost of its single variable rate by the full 0.25% from September 1. Scottish Widows Bank and First Direct have announced that they will also cut rates.

These cuts are also good news for first- time buyers and may help those seeking their first foot on the property ladder afford a mortgage that meets their needs.

Whilst most large lenders are expected to follow suit, not all are expected to do so. The Nationwide Building Society, for example, is keen to retain a strong competitive position in both the savings and mortgage markets. Their customers on tracker mortgages will see their rates drop to 5.25% on September 1.

The reason why some lenders are resisting the temptation to cut mortgage rates is the difficult balancing act they have to perform between giving their savers and borrowers the best deals.

Although borrowers tend to be the most vocal in demanding a cut in the cost of their loans, lenders are all to aware that the number of savings accounts held in the UK- around 35m- outnumber mortgage holders by more than three to one. Many savers are older and rely on the interest they receive from their savings and as a result, are all too willing to switch accounts to obtain the best deal available.

It appears that these lenders reluctance to cut mortgage rates can be attributed to ensuring that they strike a fair balance across their range of products and ensuring that the decrease in savings rates is in the interest of their investors.

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