When the Bank of England cuts the base rate we all assume that the interest rates on our borrowing will go down, and this is why recent news of a rate cut was greeted with delight by most consumers. The Chancellor and the Prime Minister announced earlier this month that the base rate was to be cut by 0.5% a full day before the monthly Monetary Policy Committee meeting, and for many this gave hope of lower borrowing costs and reduced outgoings
Most people assume that if the Bank of England cuts the base rate then lenders will also cut their borrowing rates by the same amount, but whilst this may have been true once it seems that it is no longer the case. In fact, a number of industry officials have expressed concern that there seems to be no connection between base rate movement and interest rate movement from lenders any longer, which could make things very difficult for borrowers
After the 0.5% base rate cut was announced by the government some mortgage lenders did announce that over the next few weeks they would be passing on the full rate cut to borrowers, which means that some borrowers will enjoy the benefits of the base rate cut. However, there were also lenders that decided to pass on only part of the base rate cut, and there were even some that said that they would not be passing on the rate cut at all
Whereas in some cases, where the lender does pass on the rate cut, consumers will benefit and save money on their borrowing costs due to the rate cut, there are other new borrowers and existing borrowers with less scrupulous lenders who will not benefit because the lender decides that the rate cut is not going to be applied or takes time in passing the rate cut on to borrowers. Many lenders of mortgages have been accused of pocketing the money from the rate cut by refusing to or delaying passing it on to consumers.
The base rate cut may mean that compared to a few months ago you can now get a more competitive rate on interest on credit cards, loans, and mortgages, although there is no guarantee, and any rate cuts may be conditional, such as only available to those with large deposits to put down in the case of mortgages. Make sure that you shop around to try and find the best rates – this is something that can be done quickly and conveniently online
Many people who have been paying over the odds on their mortgage may decide that now is a good time to switch to another lender and find a mortgage with a more competitive interest rate. However, whilst this may prove effective you should remember that there may be arrangement and other fees involved, and this could make it less worthwhile to change. Check out what fees are involved and how much you will be charged before you switch your mortgage or loan to another lender, even if the headline rate appears tempting