Does Base Rate Cut Mean That Lenders Will Cut Rates?

The Prime Minister, Gordon Brown, and the Chancellor, Alistair Darling, recently announced some welcoming news to the nation, stating that the base rate was going to be cut a day ahead of the Monetary Policy Committee meeting. The base rate was cut by 0.5%, which was the biggest cut for some time, and many consumers hoped that this meant that their borrowing costs would fall and leave them with more disposable income each month

Most people assume that if the Bank of England cuts the base rate then lenders will also cut their borrowing rates by the same amount, but whilst this may have been true once it seems that it is no longer the case. In fact, a number of industry officials have expressed concern that there seems to be no connection between base rate movement and interest rate movement from lenders any longer, which could make things very difficult for borrowers

After the 0.5% base rate cut was announced by the government some mortgage lenders did announce that over the next few weeks they would be passing on the full rate cut to borrowers, which means that some borrowers will enjoy the benefits of the base rate cut. However, there were also lenders that decided to pass on only part of the base rate cut, and there were even some that said that they would not be passing on the rate cut at all

Whereas in some cases, where the lender does pass on the rate cut, consumers will benefit and save money on their borrowing costs due to the rate cut, there are other new borrowers and existing borrowers with less scrupulous lenders who will not benefit because the lender decides that the rate cut is not going to be applied or takes time in passing the rate cut on to borrowers. Many lenders of mortgages have been accused of pocketing the money from the rate cut by refusing to or delaying passing it on to consumers.

It is best to take matters into your own hands if you want to save money on your borrowing costs following the base rate cut. As an existing borrower you can shop around and look for more competitive rates on loans, mortgages, and credit cards, and as a new borrower you can compare different financial products from a range of lenders in order to find the most competitive deal and get the most affordable repayments.

Many people who have been paying over the odds on their mortgage may decide that now is a good time to switch to another lender and find a mortgage with a more competitive interest rate. However, whilst this may prove effective you should remember that there may be arrangement and other fees involved, and this could make it less worthwhile to change. Check out what fees are involved and how much you will be charged before you switch your mortgage or loan to another lender, even if the headline rate appears tempting