Banks Give In To Government Pressure On Interest Rates
Following the welcome news last Thursday that the Bank of England’s Monetary Policy Committee had decided to cut the base rate of interest by 1.5 per cent to just 3 per cent, there was immediate concern that a large number of banks and building societies were not going to pass the savings on to their customers with homeowner loans and secured loans.
By the end of business on Thursday, only Lloyds TSB and Abbey had announced that they would be reducing their secured loan rates for existing borrowers in line with the Bank of England’s decision.
On Friday last week, the Government applied as much pressure as it could to lenders, with Gordon Brown meeting with UK bankers in order to persuade them to reduce the rate they charge on mortgages and secured loans accordingly and throughout the course of the day, the majority of lenders bowed to the pressure and lowered their lending rates.
Those individuals who took out a tracker rate on their loan will automatically have their rate reduced, for a typical secured loan of £100,000, the average borrower should save around £125 per month on their repayments. Interestingly enough, practically all lenders withdrew their tracker rate loan products for new borrowers earlier last week in anticipation of the expected rate cut.
The other big help for lenders on Friday was that the inter bank lending rate, LIBOR (London Inter Bank Offered Rate), fell to 4.5 per cent following the base rate cut, thereby allowing banks and building societies to cut their own lending rates. LIBOR has now reduced by 1.81 per cent since the 1st October, when the rate reached a high of 6.31 per cent.
In a speech on Friday, Gordon Brown said “We are determined not only that the interest rate cuts are passed through, we’re also determined that lending resumes so that homeowners looking for mortgages, small businesses looking for cash flow and families looking for the normal practices of banking to help them as they go through their lives, is properly resumed by the banking system.
The Government has done what it can, the Bank of England has done what it can to reduce interest rates and now it is up to the banks to take their lead seriously in what they have to do to resume lending and do so at rates that are appropriate and not rates that are excessive.”
