Mortgage providers will ignore base rate cuts

Home owners anticipating a forthcoming cut in the Bank of England’s base rate are likely to be disappointed by the impact of such a move on their mortgage payments.

According to Firstrung, the first-time buyer mortgage specialist, the convention of mortgage providers following the base rate has been broken by the credit squeeze.

Some analysts are forecasting up to three cuts in the base rate during 2008, but these could have little impact on the mortgage market.

Paul Holmes, Firstrung’s chief executive, says: “The lenders are completely detached - the Bank of England might lower rates tomorrow, but the lenders would say: ‘That’s fine, but we still need to make a profit.’”

The base rate has not increased since July of this year and currently stands at 5.75%.

The Bank’s Monetary Policy Committee will meet again in early December to review the rate but there is a strong possibility that it will remain unchanged.

A “wait and see” attitude with regard to inflation and the fall out from the Northern Rock crisis may prevail.

Mr Holmes acknowledges that there has been a marked reduction in the number of mortgage products available but believes there are sufficient for the market to remain competitive, adding that the industry needed “contraction and consolidation”, rather than new products.

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