The 0.5 per cent cut had been widely predicted in the financial services industry as economists in the UK become increasingly concerned that the world slowdown will have a negative effect on Britain’s booming economy.
However, there are also worries that continued interest rate reductions may spark inflation as growth in the housing and retail markets continues, but savers continue to lose out.
Michael Coogan, director general at the CML, said: “The rate cut will help to mitigate the potential effects of a worsening outlook for consumer confidence and unemployment. It is likely to feed through to lower mortgage rates but unlikely to fuel the housing market, which is already beginning to show signs of cooling down.”
“The CML expects mortgage lending to hold up next year, despite the worsening outlook for the economy. However, house prices are likely to experience much lower growth next year of around 3 per cent compared to an anticipated 11 per cent this year.”
One of the first lenders to reduce its rate in line with the cuts was telebank, Intelligent Finance, which reduced its standard variable rate from 5.35 to 4.85 per cent. And Jim Spowart, chief executive of Intelligent Finance, said that the cut was a positive move. Spowart said: “This is another shot in the arm for consumers. If other lenders follow suit and pass on the full benefits of this latest cut, consumers will get a substantial boost.”
The big three mortgage lenders Halifax, Nationwide and Abbey National have also reduced their rates.
Halifax’s ‘new’ standard variable rate (SVR) is reduced by the full 0.5 per cent to 5 per cent immediately for new borrowers and from 1 December for existing customers. Its old SVR will also benefit from the full rate cut, reduced from 6.25 per cent to 5.75 per cent from December.
Similarly, Nationwide has cut its base mortgage rate BMR) and SVR by 0.5 per cent to 4.74 per cent and 5.24 per cent respectively, for both new and existing borrowers from December.
It’s BMR is guaranteed to be no more than 2 per cent above the Bank of England base rate and the SVR is capped at 0.50 per cent above the BMR.
Abbey National has continued to show its commitment to savers and cut it’s SVR by just 0.40 per cent. Janet Connor, director of retail marketing at Abbey National, said: “This is the seventh base rate cut this year so far and homeowners are enjoying the benefits. However, these cuts have had a negative effect on savers, and recently Abbey National has sought to limit this impact by balancing the needs of both mortgage and savings customers.”
