However the Council of Mortgage Lenders (CML) have warned that borrowers with standard variable rate mortgages should not expect a cut in Bank rate to be matched by an equivalent reduction in their mortgage rate, as there will not be an instant equivalent reduction in the cost of funds to lenders. Lenders' borrowing costs are not determined by the Bank rate alone, but include what they need to pay savers to attract deposits and the rate other institutions and the money markets will lend at.
As savings rates fall there will be less incentive for savers to invest their money and, in turn, less money to re-lend out to mortgage customers.
As well as balancing the needs of borrowers and savers, many lenders face conflicting pressures to maintain stability in this difficult time. They must hold sufficient capital, repay the cost of Treasury loans, pay a premium to access the Bank of England Special Liquidity Scheme, show forbearance to borrowers in arrears, make payments to the Financial Services Compensation Scheme for the bailout of other banks, and continue lending to new borrowers.
