Any interest rate cuts are welcome, especially in the current economic climate, but it's wise to keep some things in perspective!
While the 0.25% cut in interest rates should bring some respite for you struggling home owners, the rate reduction was made against a backdrop of stagnating house-price growth, waning consumer confidence and a fall in mortgage approvals.
But it was also made in the face of rising energy costs and record oil prices, which are likely to fuel inflation. It appears that the Bank of England is prepared to sacrifice low inflation to avert an economic slowdown. However, a solitary rate cut is unlikely to help, while inflation is a clear and present danger for all of us.
Amongst all this, banks and building societies have been accused of profiteering after official figures showed that not only had they raised millions of your mortgage bills just before the cut in interest rates by the Bank of England, but that they failed to pass on the previous interest rate cut to us.
Hmmm, that sort of makes an interest rate cut quite redundant doesn't it?
Meanwhile, financial experts warned that even if rates continue to fall this year, the majority of the 11.8 million of us who have a mortgage are unlikely to see much benefit from them.
- So what has been going on?
In the past few weeks 10 mortgage lenders, including the
Royal Bank of Scotland,
Alliance & Leicester and the
Nationwide, have increased some of their rates, despite the Bank cutting rates from 5.75% to 5.5 % in December.
Bank of England data shows that the average mortgage rate has been inflated. When interest rates were last at 5.5% (May last year) the average mortgage rate was 5.66% but when rates moved back down to that level in December the average was 5.93%
For someone on a typical interest-only mortgage of £150,000, this meant an increase of £33.75 on their monthly bill to £741.25.
Eddie Weatherill, of the campaign group Independent Banking Advisory Service, spoke out about this:
"Over the last decade the banks have used interest rate changes to massage their own rates. When the official rate goes up, they are quick to move. When it goes down, they are slow to pass on the cut to their customers. It is profiteering, and consumers end up the losers."
The five biggest mortgage lenders are now all offering deals less generous than those of last summer;
Halifax's variable rate mortgage will cost you an extra
£54 a month, while the
Nationwide's variable rate mortgage costs you
£78 a month more.
The crisis in the global financial markets has made it more difficult for banks to raise money from each other (hence the Northern Rock fiasco), so they have attempted to shore up their profits by raising cash from you, their customers.
Mick McAteer, the former principal policy adviser at Which?, said:
"After the credit crunch banks have attempted to rebuild their profit margins. Not only have they failed to pass on the full benefits of the last cut, I don't think consumers can expect much comfort from any cut this week."2008 is going to be very painful for an awful lot of people. We have already seen utility bills rise by 15%, and for many people they will be paying much more on their mortgages."
So, if you feel now could be the right time to change your mortgage, why not get some
impartial advice on comparing mortgages?
- Interest rate cuts good for all?
Sadly, not it appears...The interest rate cut might not necessarily lead to lower rates for those of you on variable rate mortgages.
A spokesman for the Council of Mortgage Lenders (CML) said:
"The 'credit crunch' is affecting the availability and pricing of loans in parts of the market, as well as on the total amount and cost of funding available to lenders overall" "In this complex environment, it is incorrect to assume that a base rate reduction will, or should, automatically result in a cut in standard variable rates or discounted rates."
The CML estimates that
20% of the 11.8 million outstanding mortgages in the UK are standard variable rate or
variable rate mortgages.
So, you may be happy that there have been interest rate cuts, but has your mortgage rate gone up in the last 6 months?
Do you feel that the banks have been slow to pass on the interest rate cuts to you?
Why not let us know in the comments?
0.25% cut in interest rates
Your mortgage; to fix or not to fix?