Despite the base rate of interest being cut by 4.5 per cent over the last twelve months, mortgage lenders have failed to pass on this debt help to their customers – only dropping the rates on their customer’s mortgage debt by an average of 1.3 per cent.
Figures from moneysupermarket.com show that the average interest rate on all new fixed and variable rate mortgages (across all to loan value ratios) stands at 5.12 per cent, down from 6.42 per cent this time last year. However, the base rate of interest has fallen to a record low of 0.5 per cent from 5 per cent over the same period of time.
Hannah Skenfield of moneysupermarket.com says: “The Bank of England base rate has dropped by 4.5 per cent since August last year, however despite this low rate environment there is a significant disparity in the amount of this saving being passed on to mortgage borrowers by the main UK lenders.”
Ivan Cooper, Chairman at debt management specialists Chiltern, said: “By failing to pass on the drop in interest rate to customers, lenders are failing to carry out what the government and Bank of England are trying to achieve – which is pumping more money into the troubled economy and relieving people’s finances.
“This may delay the recovery from the recession, meaning more people will suffer from defaults and missed payments as they aren’t helped from their lender and their household income is squeezed.”
Lenders counter this arguement by saying that the rates they pay for funding through the wholesale money markets aren’t linked directly to the Bank of England’s base rates. However, the Libor rate – the rate at which banks borrow from each other – has still fallen by 2.07 percentage points from 2.81 per cent to 0.74 per cent over the same period.
Banks add that their higher pricing reflects the increased risk that higher unemployment and falling house prices pose. Some have deliberately tried to look less attractive to borrowers, in a bid to shrink their lending book and exposure to these debts.
The Council of Mortgage Lenders added that mortgages advances by all lenders totalled £261 billion during 2008, 28 per cent below the peak of £364 billion in 2007.
