Please Don’t Reduce Rates Further Says BSA
Many borrowers in the UK have enjoyed significant interest rate cuts on their mortgage or homeowner loan over the course of the past few months, as the Bank of England has reduced rates to try and help the housing market.
The Bank’s Monetary Policy Committee (MPC) is due to meet once again on Thursday this week, to discuss amongst other things, what the base rate of interest should be set at. Many financial experts are predicting that the decision will be made to lower interest rates further, however, the Building Societies Association (BSA) has called on the Bank to leave rates as they are and not make any more reductions.
The BSA has said that although the recent interest rate cuts have been extremely beneficial for many existing borrowers with variable or tracker rates on their homeowner loans, banks and building societies are still not offering new loans to customers and this is more important to recovery than cheap rates, also the low rate of interest is having a detrimental effect on savers, particularly many pensioners who often depend on interest from their savings for income.
Adrian Coles of the BSA said “The cuts in interest rates have had a severe impact on savers. The reductions, from 5.75% prior to the run on Northern Rock in 2007 to 1.5% have seen income from savings drop by almost 75%, although the full impact of the base rate cut has not actually been passed on to many savers.
Building Societies and their subsidiaries were responsible for 62% of net lending in the fourth quarter of 2008, a further reduction in interest rates now will make people even less likely to save and disrupt further flows of funds into the mortgage market, which is already significantly short of lending potential.”
