Interest rate cuts do not stop lenders from hiking up borrowing rates
May 15, 2008
A recent report has shown that the recent base rate cuts applied by the Bank of England have done nothing to stop some lenders from hiking up their borrowing costs and interest rates, which means that many consumers are still having to pay through the nose for their borrowing despite the three base rate cuts since December. In the last few months the Bank of England has cut the base rate from 5.75% to 5% with three 0.25% rate cuts.
Just hours prior to the latest cut earlier this month two major lenders, the Alliance and Leicester and the Nationwide Building Society, announced that they were hiking up rates on some of their mortgages. The lenders pointed out that inter-bank funding and finance on the wholesale money markets was still very difficult and expensive to secure. Industry officials state, however, that this move has resulted in the banks undermining the Bank of England and making it more difficult to bring stability to the economy.
Following the Bank of England’s announcement of a bate rate cut earlier in the month one industry official who learned of the borrowing interest rate hikes by these banks said: ‘Today’s decision is irrelevant as far as pricing for mortgage borrowers is concerned. The Bank has effectively lost control of retail interest rates, which have become decoupled from the base rate.’
He added: ‘Any change in the Base Rate is likely to have little or no impact on the cost of raising funds for lenders. Together with the need to control demand this cost will continue to dominate retail lenders’ pricing decisions.’
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