Will Loans Get Any Cheaper?
Last month we saw the Bank of England cut interest rates for loans and mortgages by half a per cent, the first cut since April this year, and many borrowers were looking forward to seeing the monthly cost of their mortgage reduce in line with this cut.
However, around half of all lenders have not passed on these savings to their customers who are currently paying the standard variable rate on their secured loan and many individuals are now wondering if they will benefit from any future cuts made by the Bank, which are widely expected over the next few months.
Although the Bank of England base rate of interest has fallen, the rate at which banks borrow money from each other, LIBOR (London Inter Bank Offered Rate) has only dropped by 0.36 per cent and currently stands at 5.91 per cent.
This means that until the rate falls to a comparable level with the base rate, banks and building societies may be unable to afford to pass on any rate cuts to their customers and there is little incentive for lenders to reduce rates as, in many cases, the standard variable rate (SVR) they offer is actually cheaper than some of the remortgage deals which are available on the market.
A spokesman for Moneyfacts.co.uk said “Banks and Building societies are now facing tough decisions in light of news that the Bank of England will take an aggressive approach on future cuts in base rate.
Historically, the SVR had little relevance in the market, with only a few customers ever needing to revert to this rate and lenders have amended these rates in line with bank base changes. However, as pay rates or initial rates on other products have increased in price as a result of the adverse markets, SVR’s have become a more viable product option.
Base rate is expected to fall again and we could have a situation where even less, or no lenders choose to pass on a benefit to their customers, in an attempt, in the short term, to allow falling interbank rates to catch up with their current rates.”
