Banks still fail to pass on interest rate cuts to homeowners

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by Kay Murchie

The gloom continues in the property market as research shows that millions of homeowners and savers are not reaping the benefits as banks fail to pass on the cuts in interest rates, according to findings by Money Mail.

Banks are currently under severe from pressure from the worldwide credit squeeze but experts are suggesting that banks are using the current lending squeeze to make money by not increasing savings rates and failing to cut mortgage rates.

Banks are desperate to recover approximately £9 billion of losses from the US sub-prime mortgage crisis.

Other news this week includes the International Monetary Fund (IMF) has cut its forecast for economic growth in Britain.

The IMF has warned that property prices could slump across Britain by as much as 10% because UK houses are overvalued by 30%. It added that Britain could be the next housing market to crash following America’s implosion.

Furthermore, there are now just 4,270 different mortgage deals on the market, compared with 15,599 last July.

Also, the number of people taking out a loan fell by over 30% in March to just 49,200 in February.

Money Mail revealed since the Bank of England started cutting rates in December, homeowners and savers are being short-changed. The base rate of interest currently stands at 5.25% after reductions in December and February.

Vicky Redwood, UK economist with the consultants Capital Economics, said the banks’ margins had got narrower and narrower over the last couple of years. Now they are trying to rebuild their margins. They want to charge more to customers that they deem to be more of a risk.

If the property market crashes, they will be in for a tough time, so in the short term, they see all these changes as a perfect opportunity to boost their profits a bit, added Ms Redwood.

In spite of the sub-prime crisis that has spread from the US, British banks still made profits last year of approximately £40 billion.

Money Mail concluded that the biggest losers will be the homeowners who need to re-mortgage this year.