No sign that rate cuts to be passed on

The Bank of England's rate setting body the MPC surprised many with a 1.5% reduction to the base rate, bringing it down to 3% due to growing concerns over the downturn in the global economy, and UK mortgage market.

Unfortunately widespread opinion would suggest that today’s reduction in the base rate is unlikely to help those looking for new mortgages, with the majority of lenders withdrawing their Bank of England tracker rate products either before or shortly after the Bank of England announcement.

Alliance & Leicester who announced the withdrawal of their tracker rates today said, that due to competitor movements it was being forced to withdraw the range to manage the volume of its business, but that a new range is expected to be launched next week.

The withdrawal and increase by lenders in their tracker rate margins is seen by many in the market as pure profiteering. Edward Menashy, chief economist at Charles Stanley said ‘Whilst it has been clear that there has been a thaw taking place in the credit markets, banks have been reluctant to lend to their customers, in which case it remains to be seen how much of today's reduction will be passed on to borrowers.’

When questioned about why the banks were reluctant to pass on cuts in the Bank of England base rate to borrowers, The Council of Mortgage Lenders pointed out that the cost of borrowing to lenders is not governed directly by the central bank rat, but by their own cost of borrowing, with the cost of borrowing being dependent on what they need to pay to savers to attract deposits, as well as how much it costs them to borrow from other banks or the money markets.

On a positive note amongst all the doom and gloom, announcements by many lenders today sees the cost of fixed rate borrowing reducing.

Richard Taylor, head of mortgage products at Alliance & Leicester, commented: ‘Lower Swap rates mean we have been able to cut our fixed rate mortgage products, which is great news for those looking for a new deal of up to 75% of the value of their home. Our fixed rate mortgages offer competitive rates for those who seek budgetary certainty by fixing their monthly payments.’

Alliance & Leicester Two and five-year fixed rates are cut by 0.2% and three-year fixed rate deals are now lower by 0.15%, with the new products available from today.

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