Base rate cut a double-edged sword for mortgage lenders

| January 8, 2009 | 0 Comments
Base rate cut a double-edged sword for mortgage lenders

The director general of the Council of Mortgage Lenders has described today’s cut in the Bank of England’s base rate to 1.5% as a double-edged sword for lenders who rely on savings deposits to fund their mortgage businesses.

Michael Coogan comments that while lower mortgage rates can provide borrowers with the opportunity to repay their mortgages early, lower savings rates impact on lenders’ abilities to attract deposits and thereby maintain the flow of mortgage lending.

According to Mr Coogan, the UK’s mortgage market is still not functioning properly and the base rate cut is likely to lead to a fragmented approach by lenders.

He sees this happening as banks and building societies try to balance the interests of savers and borrowers and the other pressures on their businesses.

So far, Lloyds TSB and its Cheltenham & Gloucester subsidiary have promised to pass on today’s cut in full, benefiting customers on tracker rate loans.

Other lenders are mulling over their positions. Some may invoke “collars” in their mortgage small print which set a level below which their standard variable rates will not track the base rate.

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