Borrowing rates still rise despite base rate cuts
June 23, 2008
There have been three base rate cuts since December of last year, with the Bank of England reducing rates by 0.25% each time, taking the base rate from 5.75% to 5%. Over the past couple of months inflationary pressures have resulted in the central bank leaving rates on hold, despite concerns over the slowing economy. Inflation has now soared to 3.3%, which is way above the government target of 2%.
However, although rates have gone down several times over recent months, and have remained on hold for the last couple of months, a number of lenders have continued to increase their borrowing costs, which officials claim is bad news for consumers. Some industry officials have expressed concern that the Bank of England no longer has control over retail interest rates, as lenders have continued raising borrowing rates even though the base rate has not increased for some time.
One industry official from the Royal Institute of Chartered Surveyors stated: ‘The latest weak data on mortgage approvals highlights the continuing problems facing borrowers trying to secure finance to purchase property. Lenders are continuing to tighten up on the conditions accompanying new loans making it hard for first-time buyers to take advantage of the modest fall in house prices seen over the part few months.’
Abbey was one of the lenders to raise interest rates on borrowing, and an official from the bank recently stated: ‘We have reviewed our rates in some areas to ensure we are writing sustainable and high quality mortgage business. The last two weeks has seen a volatile swaps market, which is still feeding through. It is likely that while the mortgage market remains volatile, we will continue to see frequent changes to rates.’
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