Base rate cut on the cards but SVRs could stick
Homeowners on borrowers’ standard variable rates (SVR) should not get too excited about the prospect of a base rate cut this week.
Analysts are predicting that the Bank of England’s Monetary Policy Committee will vote for a cut of between 0.4% and 1% when it meets this week but a senior executive from HSBC has warned that lenders may not pass on the full benefit borrowers.
The bank’s chief operating officer, David Hodgkinson, explains that credit has been mispriced in recent years and we are now in a period of adjustment during which lenders will look at a particular situation and risk before lowering rates.
The credit crisis has pushed large numbers of borrowers onto their lenders’ SVRs.
Homeowners coming to the end of fixed-rate deals are sometimes unable to remortgage because they have a small amount of equity in their properties or are blighted by a poor credit history.
However, banks and building societies have not necessarily been passing on recent cuts in the base rate.
Last week, financial information provider, Moneyfacts.co.uk, reported that half of the UK’s mortgage lenders had failed to trim their standard variable rates (SVR) in line with recent base rate reductions.
Borrowers on base rate tracker loans are in a stronger position and should see the benefit of a November cut in the base rate during December but even then, some lenders have a “collar” in place which means they do not have to reduce rates once the base rate has fallen past a certain level.
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