More mortgage rate cuts forecast
Updated on 03 November 2008
More banks and building societies are expected to reduce their mortgage rates this month than did in October if the official cost of borrowing is cut again on Thursday, commentators said.
But many of these lenders will be groups who failed to pass on reductions following last month's cut.
The Bank of England's Monetary Policy Committee is widely expected to reduce the base rate by at least 0.5% this week, with some economists pencilling in a 1% reduction.
But only 54 out of the 96 lenders that have a standard variable rate (SVR) mortgage have so far passed on October's 0.5% reduction, with many of these failing to pass on the full cut.
The problem for lenders is that their own funding costs are based on the inter-bank lending rate Libor, rather than the base rate, and wholesale funding costs have been slow to respond to the October cut.
The key lending rate of three-month Libor stood at 6.27% or 1.27% above the Bank's base rate on October 8 when interest rates were last reduced. But it took until Monday for the rate to fall by nearly the full 0.5% to stand at 5.78% or 1.28% above the base rate.
Ray Boulger, senior technical manager at mortgage experts John Charcol, said: "I think a higher proportion of lenders will pass something on this time. The reason some lenders did not pass anything on was that three-month Libor remained stubbornly high. It has now nearly come down by the full half point, so some of the lenders will be able to pass on some of the October cut this time as their own costs have now fallen."
But he added that he expected fewer lenders to reduce their SVRs by the full cut made by the MPC, particularly if base rate falls by 1%.
Lloyds TSB, Halifax, Barclays' lending arm the Woolwich and Royal Bank of Scotland were the only lenders to announce they were reducing their SVR by the full 0.5% on the day the cut was announced in October.
Mr Boulger said that given three of these lenders had recently received Government support, there was likely to be a similar pattern if a cut is announced this week.
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