Base Rate Now Lowest Level In History
The Bank of England’s Monetary Policy Committee (MPC) held its usual monthly meeting this lunchtime and announced that the base rate of interest for homeowner loans and savers would be reduced once again, this month by 0.5 per cent.
This means that interest rates have now dropped by 3.5 per cent since October last year, when the rate stood at 5 per cent. With the base rate now at 1.5 per cent, this is the lowest ever recorded rate since the Bank of England was founded 315 years ago.
Some loan providers have been quick to announce that they will pass on the full rate cut to their customers with loans on the standard variable rate and these include Abbey, HSBC, Nationwide, Lloyds TSB and Cheltenham & Gloucester. Other lenders may not be quite as keen to pass on the cuts and some are likely to leave rates unchanged in order to help retain existing and attract new customers with savings accounts.
The news will undoubtedly be welcome to those people with homeowner loans, particularly if they are on a tracker rate or even a standard variable rate loan. Industry experts are concerned however, that this will not benefit the economy as intended. Banks and building societies need to restore liquidity in order to be able to offer new loans and today’s news is likely to deter savers from investing in banks, which would help their new lending situation.
Michael Coogan of the Council of Mortgage Lenders said “While lower mortgage rates provide borrowers with the opportunity to repay their mortgage debt more quickly to reduce the term, lower savings rates impact lenders’ ability to attract deposits and maintain the flow of mortgage lending in 2009.”
Robert Sinclair of the Association of Mortgage Intermediaries said “The bank and Government must tackle the burning issue of a lack of liquidity. This is what now holds back the market and it will not be solved by a further cut in the base rate.”
