It seems that despite the base rate being cut by 4.5 per cent, consumers borrowing money are not actually benefiting as much as maybe they should do.
The average rate of a mortgage has gone down by a mere 1.3 per cent during the past year. This was reported on the Times Online website following a news report from moneysupermarket.com.
New fixed and variable rate mortgages are charged with the 5.12 per cent rate, across all loan-to-value ratios, with August last year reporting the average rate at 6.42 per cent. Compare this with the drop in the Bank of England?s base rate from 5 per cent to a record low of 0.5 per cent and the figures don?t seem to add up.
Some banks and building societies are better at passing on the cuts than others, with the Alliance & Leicester making the largest reductions to its customers. Their average rate has fallen by 2.3 per cent over the last year. Northern Rock, perhaps unsurprisingly, has only dropped its rate by 0.27 per cent.
The current increased risk, falling house prices and more unemployment are among the reasons given by the lenders for not reducing their rates more, with some trying not to be too competitive. Also, they claim that the wholesale money market rates are not linked in a direct way to the base rate. According to the Council of Mortgage Lenders, during 2008, mortgages lending in total came to ?261 billion which is 28 per cent less than the 2007 peak of ?364 billion.
