Interest rate cuts may not be passed on right away says Darling
May 3, 2008
Many homeowners in the UK breathed a sigh of relief at the end of last year, when the base rate fell for the first time in over two years, following a series of five interest rate hikes. Following the 0.25% base rate cut in December of last year, interest rates have fallen a further twice, each time by another 0.25%, taking the base rate to 5%. However, not all borrowers have benefited from these rate cuts as some lenders have failed to pass on all of any of the rate cut.
Government officials have been urging lenders to make sure that they pass on the rate cuts, stating that in exchange for the Bank of England ploughing billions of pounds into the money markets in order to increase liquidity, the banks had to do their bit for the economy by increasing affordability through passing on the interest rate cuts. Chancellor, Alistair Darling, has warned however that that interest rate cuts may not be passed on right away, and may take time to take effect.
Darling stated: ‘It will take time because banks are having to build up their capital positions. There is no quick fix.’ The governor of the Bank of England also added that in the past some banks have not passed on the rate rises to borrowers, and he said: ‘What has been happening in the last six months is that now we are cutting interest rates some of the reductions in Bank rate have also not been fully passed through to mortgage rates.’
Many homeowners are continuing to face financial strains as a result of rising living costs and bills, and the failure of some banks to pass on the recent rate cuts is making affordability increasingly difficult for some homeowners. The mortgage sector has been experiencing turmoil over recent months, with lenders finding it increasingly difficult and expensive to secure funding, and many hiking up mortgage rates despite the recent base rate cuts.
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