Most borrowers will receive full 0.25% cut
May 27, 2008
A recent report has predicted that most mortgage payers in the UK will in fact benefit from the full 0.25% base rate cut, despite initial fears that some consumers would never see the cut reflected in their mortgage interest rate. The Bank of England cut the base rate by 0.25% following the December Monetary Policy Committee meeting, taking the base rate from 5.75% to 5.5%. This came as a relief to many homeowners who had been struggling with rising interest rates and rising repayments.
Following the base rate cut a number of major lenders, including First Direct, Halifax, and Nationwide, responded right away to confirm that their customers would be receiving the full 0.25% base rate cut. However, there were other lenders that were reviewing the situation and had not responded to the base rate cut. This sparked fears that some lenders might try and recoup financial losses from the credit crunch by failing to pass on the base rate cut to borrowers.
The report suggests that whilst some smaller lenders have decided that they will only be passing on part of the interest rate cut, most major lenders have decided that they will actually pass on the full rate cut of 0.25% to borrowers, which means that most will actually benefit from the full rate cut.
One industry professional stated that lenders that pass on the full rate cut this time around may find it difficult to do so again if there is another rate cut early in the new year as expected. However, he also stated: “I am surprised at the extent to which the full cut has been passed on. Particularly when you bear in mind that the widening spread between bank rate and the cost of funds in the wholesale money market has increased the cost of borrowing for almost all lenders.”
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