50% banks not passed on base rate cut to mortgage customers

The BOE cut interest rates to a seven and a half year low of 0.25% in August, expecting it would prompt lenders to cut rates for customers on variable rate products.

About half of mortgage lenders have failed to pass on the Bank of England’s (BOE) interest rate cut to their variable rate borrowers, despite governor Mark Carney saying he expected them to do so.

The BOE cut interest rates to a seven and a half year low of 0.25% in August, expecting it would prompt lenders to cut rates for customers on variable rate products.

But finance portal Moneyfacts said the initial reaction hadn’t been as positive as may have been expected.

Finance expert Charlotte Nelson said: “Borrowers would have assumed that a 0.25% cut in base rate would make them financially better off, particularly if they were on a variable rate. However, this is unfortunately not the case, with just under half of providers failing to pass this cut on to their Standard Variable Rate (SVR) customers.”

Moneyfacts said the average SVR mortgage was down 0.09% month-on-month while the average fixed rate mortgage decreased by a mere 0.03%.

“Given that fixed rates are at all-time lows, borrowers sitting on their SVR could still be better off opting for a fixed rate,” Nelson said.

Tracker mortgages, which tend to track the Bank base rate, seemed to be falling in line, with the average two-year tracker mortgage decreasing by 0.19% and the lifetime tracker rate falling by an average of 0.24%.

However, all may not be as it seems, Nelson said. “Shockingly, some providers, preempting the announcement, chose to increase their variable rate products, meaning the reductions have been offset,” she said.

She added: “Given the bumpy road ahead for the economy, some providers are still quite cautious in their reaction to this new turn of events, with many choosing to wait and see to ensure they get the timing right.”

Moneyfacts said mortgage customers could be better off waiting to see if rates can go even lower, or alternatively opt for a low fixed rate mortgage.


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Written by: Houseladder