Patricia Gibson has expressed her concerns that a month after the Bank of England’s 0.25% cut in base rates, savings have not been passed on to borrowers , whilst rates have already been cut for savers.
Research by Moneyfacts has found that many lenders are not passing on the reduction to borrowers on variable rates. Charlotte Nelson, finance expert at Moneyfacts, explained:
“Borrowers assume that a 0.25% cut in the base rate would make them financially better off, particularly if they were on a variable rate. However, this is unfortunately not the case, with almost half of lenders failing to pass this cut on to Standard Variable Rate (SVR) customers.”
The average SVR mortgage is down 0.09% month-on-month, from 4.80% at the start of August to 4.71% today. By comparison, the average two-year tracker mortgage decreased by 0.19 per cent from 2.13% to 1.94% and the lifetime tracker rate has fallen by an average of 0.24%, from 2.98% to 2.74%. The average fixed rate mortgage, meanwhile, decreased by only 0.03% from 2.48% to 2.45%.
Given that fixed rates are at all-time lows, borrowers sitting on their SVR could still be better off opting for a fixed rate according to Moneyfacts, whose calculations show that borrowers would be £121.51 a month better off (based on a £100,000 mortgage over a 25-year term on a capital and interest repayment basis) if they took out an average two-year fixed rate mortgage at 2.46%, rather than staying with an average SVR of 4.71%.
Tracker mortgages have also fallen foul of Moneyfacts scrutiny.
“The average two-year tracker rate has been reduced by 0.19%” said Ms Nelson. “Yet shockingly, some providers, pre-empting the announcement, chose to increase their variable rate products, meaning the reductions have been offset. During August, the average two-year variable tracker rate increased by 0.12%.”
“Given the bumpy road ahead for the economy as Brexit looms, some providers are being cautious in their reaction to this new turn of events, with many choosing to wait and see to ensure they get the timing right.
“Of course, another explanation is that lenders are simply not passing on the rate cut to increase their profits, savers having had the interest paid to them cut much more quickly. Does anyone doubt that a rise in base rates would not be passed on almost immediately?
“Constituents with a mortgage could be better off waiting to see if rates can go even lower. Alternatively a low fixed rate mortgage might be the safest way to go with all the uncertainty at the moment.”