Thursday, February 5, 2009

Pointless Interest Rate Cut?

Today, the Bank of England is widely expected to cut interest rates again from 1.5% to 1%.
  • However, the impact of the rate cut is likely to be limited.
  • Some non-nationalised banks have been reluctant to pass the base rate cut onto consumers. For example, the Yorkshire building society have said they will keep their Standard Variable Rate at 4.5% whatever the Bank of England do.
  • Banks and Building societies are keen to stress the necessity of keeping savers. Without saving deposits it is difficult to have sufficient fund to lend new mortgages. They argue cutting interest rates could even be counter-productive as it will make it more difficult to attract savings and lend new mortgages
  • For some with tracker mortgages, an interest rate of 1%, can mean in theory their mortgage repayments will be £0. Some took out a tracker mortgage which offered a 1% off base rate. These homeowners will have a real bonanza.
  • Other mortgage companies will be thankful they inserted a collar clause which limits the amount of rate cuts that get passed on.
  • Interest rates explained

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