Base rate changes do not automatically lead to mortgage rate cuts

Homeowners should not expect reductions in the interest base rate to automatically cause lenders to reduce their own mortgage interest rates, a leading industry organisation has claimed.

The Council of Mortgage Lenders (CML) claimed that the decision by banks and building societies on whether to reduce their mortgage rates is not solely linked to the Bank of England's setting of interest rates.

Instead, in a statement issued earlier today (January 10th), the CML highlighted the fact that those on fixed or tracker rate products are unaffected by lender's decisions to change their variable mortgage rates.

Attempting to draw attention to other factors influencing individual companies' rate-setting, they said: "The factors that determine lenders' rate-setting policies are more complex than simply the level of the bank base rate."

"Lenders must have regard to their own cost of funding from savers, and also from wholesale sources and the level of margin they are seeking to achieve, as well as their view of how rates may move in the future and how this may affect future pricing," they added.

"In this complex environment it is incorrect to assume that a base rate reduction will (or should) automatically result in a cut in standard variable rates or discounted rates."

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