Despite the latest one per cent cut in the bank rate, there are widespread doubts that it will become much easier – and more importantly, much cheaper – for many people to buy a home.
This latest cut obviously boosts those who already have a mortgage, especially those at Cheltenham and Gloucester (C&G) who took two year fixes last summer at Bank Rate minus 1.01 per cent.
Their loan now costs just 0.99 per cent – the first time in living memory we’ve seen a mortgage rate below one per cent.
Most borrowers on tracker rates benefit, too.
Ray Boulger, at brokers John Charcol, reckons that only half a million of the 3.9 million tracker borrowers are likely to be caught by the collar which prevents the rate going too low, while the rest get the latest cut passed on in full.
However, for potential new borrowers, little has changed; borrowers with only a ten per cent deposit could still pay six per cent-plus.
Andrew Hagger, at finance website Moneynet.co.uk, says: “Unless buyers have a substantial amount of equity in their property, say 25 per cent of value, there is little evidence this succession of cuts is making mortgages any cheaper.
“Despite financial intervention from government, there seems to be a general unwillingness among lenders to provide mortgage finance priced in line with the sharp downward movements we have already seen in bank rate, the LIBOR rate on interbank loans, and other money market rates.”
A thick fog encircles Standard Variable Rate (SVR) loans following the December 1 decision by Nationwide BS to withdraw its 4.69 per cent SVR to new applicants, after similar moves by Abbey, Alliance & Leicester, Halifax, Cheltenham & Gloucester (Lloyds TSB), Royal Bank of Scotland and Yorkshire BS.
About 20 per cent of the 11 million mortgage holders hold SVR loans. Among the major lenders, Nationwide has the most.
Mr Boulger predicts: “Very few lenders will pass on the whole of this month’s cut, and most will reduce SVRs by between just 0.25 per cent and 0.5 per cent.
“Some coerced by Government into passing on all of last month’s 1.5 per cent cut against their better commercial judgement may be parsimonious this time, unless there is further Government browbeating.”
Francis Ghiloni, at mform.co.uk, a free service to find “best buy” mortgages, says the clampdown on SVRs could hit borrowers keen to escape fixes left high and dry by plunging rates since the summer.
Until six months ago, SVRs were mainly for borrowers too lazy to chase cheaper fixes and trackers. But when the Bank of England cut rates by 1.5 per cent on November 6, the government told lenders to cut SVRs by the same margin.
Michelle Slade, from financial website Moneyfacts.co.uk, says a minority obeyed. The big lenders did as they were told, while others – including Standard Life Bank, First Direct and Barclays/Woolwich – left SVRs unchanged.
Mr Boulger thinks Government gained a ‘Pyrrhic victory’ in November by leaning hard on big lenders – the cost of victory outweighs the gains.