MPC Slashes Interest Rates
In a surprise move yesterday (Thursday 6th), the Bank of England’s Monetary Policy Committee (MPC) announced a cut in the base rate of interest of 1.5 per cent, bringing the base rate down to 3 per cent.
This move follows a cut last month, when the rate was cut by half a per cent, to 4.5 per cent. A reduction in the interest rate had been widely expected by industry experts, but most had predicted another cut of half a per cent, with many calling for 1 per cent. The move to cut rates by this margin has taken most people by surprise, as previous interest rate cuts have typically been 0.25 per cent.
The main question now is whether or not banks and building societies will pass on the savings to borrowers with home owner loans and secured loans. Those individuals with a tracker loan will automatically see their monthly repayments reduce, for someone with a secured loan balance of £150,000, they should see a reduction of around £187.50 per month.
However, for those borrowers who are paying their lender’s standard variable rate, it is not guaranteed that the rate cut will be passed on, as the interbank lending rate (LIBOR) still remains at a much higher level than the base rate, although this is falling steadily and should reduce further following yesterdays news.
The Chancellor of the Exchequer, Alistair Darling, said that the Government would do all they could to apply pressure on lenders in order to pass on the savings and reduce the cost of secured loans and home owner loans to borrowers.
One industry expert said “The cut today is welcome, but sadly many borrowers aren’t going to benefit. There’s no obligation for lenders to reduce their standard variable rates (SVR’s) and if last month is anything to go by, most will be reluctant to cut their SVR’s significantly because these rates look relatively good value at the moment.”
