Mortgage rate increases means no relief from April interest rate cut

Permalink: Mortgage rate increases means no relief from April interest rate cut
by Kay Murchie

The Bank of England’s Monetary Policy Committee (MPC) cut interest rates yesterday from 5.25% to 5%, as widely expected by economists.

This is the third time since December that interest rates have been cut in an effort to protect the economy from the global credit crunch.

However, mortgage rates for many borrowers have actually increased and the central bank’s credit conditions survey last week warned that the situation could deteriorate.

Many lenders are yet to pass on the recent interest rate cuts. Instead they are increasing rates, asking for larger deposits, tightening lending criteria and, in some instances, withdrawing deals from the market altogether.

Commenting on the interest rate cut, Liberal Democrat Treasury spokesman Vince Cable said a quarter per cent cut in interest rates seems like welcome respite for the millions of homeowners struggling to meet mortgage repayments. However, the reality is that this will make little, if any, difference for the vast majority of people.

Despite having already seen two interest rate cuts from the Bank of England in the last few months, most lenders have actually increased their mortgage rates, added Mr Cable.

Before mortgage and loan rates can fall, banks must first come clean about the full extent of the bad assets they hold. This is the only way to restore trust in the market and bring down the costs of inter-bank lending, concluded Mr Cable.

Nationwide and Alliance & Leicester (A&L) have joined other lenders in pushing through big increases of up to 0.35% in their fixed-rate offers, in spite of the fall in interest rates.

It was A&L’s second increase in just a week, while Nationwide raised its prices just 2 weeks ago.

Ann Robinson of comparison website uSwitch.com, said while the lowering of interest rates provides light relief for some, first-time buyers and those set to come off a fixed-rate mortgage may not be so happy with the announcement.

Cheltenham & Gloucester, first direct, Halifax, Nationwide and the Woolwich announced they would be cutting standard variable mortgage rates by the full 0.25%, in line with the base rate cut.

However, Abbey, Alliance & Leicester, HSBC and the Royal Bank of Scotland (which includes NatWest) said their rates are under review.

The six million homeowners who have a tracker mortgage are the most likely to benefit from the interest rate cut as they move in line with the base rate. Those with a £200,000 mortgage will save over £30 a month.