Rate cuts may not prove of benefit to many homeowners

With the aggressive rate cuts that have been applied to the base interest rate by the Bank of England over recent months homeowners on variable rate interest deals should in theory be delighted. Since last November the base interest rate has plummeted by nearly two thirds, plunging from 5.75 percent to just 2 percent. It now stands at its lowest levels in nearly six decades, and many think that it will fall further over the next couple of months.

However, some industry officials have said that not all homeowners will benefit from the rate cuts even if they are on variable rate mortgages. This is because many lenders have been failing to pass on all or sometimes any of the rate cuts, and this has raised concerns amongst campaigners as well as senior government officials. The aim of cutting the rates so aggressively was to boost the economy, but with lenders failing to pass on rate cuts this may not happen.

Prior to the last rate cut at the start of the month one industry official stated: ‘Both borrowers and savers have been penalised following the last base rate cut. It is hard to believe that it will be any different if the Bank cuts the base rate again today.’

This is because whilst banks are very slow to pass on base rate cuts to borrowers they are usually very quick to pass on the rate cuts to savers, which makes it a win win situation for banks and a lose lose situation for those that have borrowings and savings.

It is widely expected that the Bank of England will cut rates again in January, and lenders are being urged to pass on any future rates cuts as soon as possible in order to benefit consumers and boost the economy. However, based on previous trends there is a chance that only a handful of lenders will pass on the full extent of future rate cuts.

Tags: variable rate, future rates cuts, home insurance, Mortgages, homeowners, base rate cut