According to recent figures published by the Bank of England, banks have failed to cut interest rates last month, to mortgage borrowers, but slashed interest due to savers.
In early December 2007, banks have cut interest rates by a full percentage point, in response to the escalating credit crisis of the autumn and most mortgage borrowers paid only a part of that, while savers were hit hard by cuts in the interest paid on their deposits.
Bank of England’s survey of quoted rates showed, in most common form of borrowing ie., interest rates on two-year fixed rate mortgages for homes purchased with a deposit of 25%,fell to 4.79% from 5.1%, in November 2007. This has been the lowest since April 2006, but still much higher than in the bank rate, currently 1.5%.
Tracker mortgage borrowers benefitted from rate cut, which on average fell to 4.95% from 5.78%, the lowest level since January 2004. Interest rates for ISAs were cut by 1.7 percentage points, and on savings with a specified time length of deposit by 1.5 percentage points.
Banks refuse to lower interest rates, in spite of their £37bn re-capitalization using public money. The other reasons, banks are being demanded by the government that they should lend more, they are also unable to pass on rate cuts because their costs of funding remain elevated.
Council of Mortgage Lenders showed in its recent data, gross mortgage lending fell by more than half in the 12 months to November of last year.
According to Vicky Redwood of Capital Economics, banks do not want to increase lending because of the risk of rising debt defaults due to the collapse in present economy.Read More →