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8th Jan 2009
Rates cut a further 1.5%
The Bank of England has cut rates to 1.5%, making it the first time rates have fallen below 2% in the bank’s 314-year history.
Lloyds TSB and its lending arm Cheltenham & Gloucester has already pledged to pass on the rate cut to its existing customers on variable and tracker mortgages.
Nationwide has also promised to pass the cut onto its customers on SVRs, but not for those on tracker mortgages with collar clauses in their contracts.
But the Association of Mortgage Intermediaries argues that cutting rates is not enough to get the mortgage market moving again.
Robert Sinclair, director of AMI, says: “In reality the reduction in the base rate is now unlikely to have the desired effect, as this will not be fully passed on by lenders and is simply likely to damage savers further.
“It is vital that this does not distract from the real issue of a lack of liquidity in the mortgage market. Banks continue to be constrained by increasing capital requirements rather than being universally encouraged to support the wider economy.”
The Treasury is thought to be considering measures other than interest rates in order to restore normal lending.
One of the hotly-tipped alternatives said to be under discussion by the Treasury is quantitative easing, which would see more money being printed and further capital injected into the UK’s ailing banks.
Ben Thompson, mortgages director at Legal & General,says: “Cuts in the base rate are starting to look futile and even-counter productive.
"We have reached the point now where only the fortunate few are really benefiting and savers are really starting to suffer.
"What lenders need more than ever are savers’ deposits, and they are not going to get them if they can only offer paltry rates of interest.
"It is lack of credit that is hurting the market, and mere rate cuts are not going to help directly.”
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