Base rate cut unlikely to boost mortgage lending

The Council of Mortgage Lenders has responded to yesterday’s cut in the base rate to 1% by saying that “it is unlikely to have a material effect on the overall state of the mortgage market”.

The Council’s director general, Michael Coogan, agrees that borrowers on tracker rates will welcome the reduction but says it is doubtful whether the move “will create the conditions to achieve significantly more new lending”.

One of the reasons for this is that banks and building societies may try to prioritise savers who have already seen rates plummet since the Bank of England began its assault on the base rate, last October.

Mr Coogan also suggests that the cut is unlikely to help many existing mortgage borrowers, as those who remain in employment are probably not finding affordability a problem at the moment.

However, he does point out that if businesses are helped by the reduction, this could improve employment prospects and “help to cushion the impact of the recession on the housing and mortgage markets” but he adds that “in practice, rate cuts alone will not achieve this objective”.

According to a BBC report, Lloyds TSB, Cheltenham & Gloucester, Skipton Building Society, HBOS, Nationwide, and Woolwich have so far confirmed that they will pass on yesterday’s 0.5% rate cut to customers on standard variable-rate rates.

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