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Will Base Rate Cut Mean Lower Borrowing Costs?
By plrprousers | January 11, 2009
The Prime Minister, Gordon Brown, and the Chancellor, Alistair Darling, recently announced some welcoming news to the nation, stating that the base rate was going to be cut a day ahead of the Monetary Policy Committee meeting. The base rate was cut by 0.5%, which was the biggest cut for some time, and many consumers hoped that this meant that their borrowing costs would fall and leave them with more disposable income each month
Most people assume that if the Bank of England cuts the base rate then lenders will also cut their borrowing rates by the same amount, but whilst this may have been true once it seems that it is no longer the case. In fact, a number of industry officials have expressed concern that there seems to be no connection between base rate movement and interest rate movement from lenders any longer, which could make things very difficult for borrowers
Following the announcement of the rate cut a number of mortgage lenders said that they would be passing on the half point cut to borrowers, and this means that some borrowers and remortgagers may be able to benefit from lower repayments. However, a large number of lenders have failed to pass on all of the rate cut, and some have not passed on any of the rate cut, so there are those that will not see their mortgage repayments falls as a result of the cut
Whereas in some cases, where the lender does pass on the rate cut, consumers will benefit and save money on their borrowing costs due to the rate cut, there are other new borrowers and existing borrowers with less scrupulous lenders who will not benefit because the lender decides that the rate cut is not going to be applied or takes time in passing the rate cut on to borrowers. Many lenders of mortgages have been accused of pocketing the money from the rate cut by refusing to or delaying passing it on to consumers.
As a new borrower you may find that you can get a lower rate of interest now than you may have six or twelve months ago, but again this depends on whether the lender you go with has reduced interest rates on its financial products. The key to getting the best deal is to shop around and compare different rates, and the best time to do this is after a rate cut. You can compare rates on mortgages, credit cards, and loans with ease and convenience online, so it shouldn’t take too much time
If you already have a mortgage and want to see if you can get a better rate of interest following the base rate cut in order to save yourself money you can compare different providers with a view to switching your mortgage to a better deal. However, do remember that there can be high arrangement fees and charges applied by the new lender, and this should be taken into account.
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