# Base rates cuts – who benefits?



## one_question (Nov 12, 2008)

The base rate has been cut progressively over the last few months – from something like 6% down to its current 0.5%. I don’t think that there will be another today but…

Anyhow, I am on a fixed rate – something like 4.89%. I have to pay a penalty to get out of it of 1% per year which, with about 14 months left, would cost me about 1.2%

I’ve just had a quick look around the current variable rates and am surprised with what they are – Abbey – 4.2%; HSBC – 3.94% (that’s all I checked). Now I know of some people on a tracker who are paying less than 1% but I would say that these people are in the minority.

So, my question is; who is benefiting from the base rate being low? Those with savings are losing out. Most on a mortgage have seen little benefit. Am I missing something? I don’t consider myself to be any good at economics but I just can’t see what the benefit of the low base rate is.

G


----------



## John-R- (Feb 4, 2007)

I'm the same I can't see a huge amount of people benefiting so far  seems the banks etc aren't really handing over the cuts 
Potentially there is savings to be had if you are not tied into a deal, but I am in the same boat as you, due to loan size and foxed term etc I wouldn't actually save anything going to another lender 

John


----------



## organgrinder (Jan 20, 2008)

The problem is that banks have to make profit somehow and one of the ways is to charge a margin over base rate for anyone borrowing money.

Now that times are hard and bad debts high, the banks are trying to increase their margins over base rate to improve profitability and over a period of time I don't see many doing better than 3% over base.

Currently there are some lucky people on trackers which are less than 0.5% over base but when they come to an end, they will suffer like the rest of us. Some also have lifetime trackers but increases in base rates are looming in a year or two.

Businesses have historically borrowed at a percentage over base and they are the main beneficiaries of the current low rates: for some this means more profit and for many others it is an essential lifeline to keep their heads above water.

When base rates fall below about 3% there is much less scope for the banks and building societies to pass reductions on to customers.


----------



## parish (Jun 29, 2006)

IIRC Nationwide and someone else (Alliance and Leicester??) have an SVR of 2.5% - according to the table on BBC News after the fall in base rate to 0.5%, but I can't find it now.

*Edit:* found it - http://news.bbc.co.uk/1/hi/business/7926581.stm (bottom of page). The other one is Lloyds TSB/C&G, not A&L


----------



## Avanti (Jan 17, 2006)

one_question said:


> The base rate has been cut progressively over the last few months - from something like 6% down to its current 0.5%. I don't think that there will be another today but…
> 
> Anyhow, I am on a fixed rate - something like 4.89%. I have to pay a penalty to get out of it of 1% per year which, with about 14 months left, would cost me about 1.2%
> 
> ...


I sort of benefit as my mortgage is a variable tracker, from a long time ago so I am over paying and as the rate drops I over pay more , i think at the mo my interest on the balance is £9 per month, looking at my statements it was around £80 18months ago.
I would never entertain a fix rate as Icannot see the lenders giving money away.


----------



## parish (Jun 29, 2006)

This thread prompted me into checking a couple of things about my mortgage - a tracker at 0.81% *below* base until Sept. - with Birmingham Midshires.

The FSA ahs confirmed that it will drop to £0.00 per month when they pass the last 0.5% cut on 

I called BM and asked about over-paying since several people here have said they can overpay on their trackers. I can't - there would be a 5% penalty  I also asked what would happen when the deal ends in Sept. I expected it to revert to their SVR which I think is currently around 4% but was told that it will continue to track BoE base rate but at 1.99% above, so currently 2.49% which matches the best SVRs and also I can pay off any lump sum I want without penalty - I thought there was a limit of 10% per year


----------



## parish (Jun 29, 2006)

Avanti said:


> I would never entertain a fix rate as Icannot see the lenders giving money away.


Same here. My view is that if lenders are pushing fixed-rate products then they confidently expect rates to fall over the term of the deal. If they were expecting it to rise they'd push trackers.


----------



## DE 1981 (Aug 17, 2007)

This has been a huge benefit to me, we recently moved house and put our whole mortgage on a tracker with nationwide, our monthly payments have fallen considerably however we choose to stick with our original payment every month in effect overpaying and cutting the period of our mortgage.

However our savings are returning next to nothing in interest so its really swings and roundabouts


----------



## IJM (Mar 11, 2006)

I too have noticed that very few mortgage products have had their rates reduced unless they are some kind of tracker. The banks have only reluctantly reduced variable rates, and then not by much, though there are exceptions. I had a brief look at current offers of various products with a view that the base rate was so low that I might actually be worth paying the penalty to move off my fixed deal onto a suitable variable.

But I was disappointed when I found that no-one seemed to be offering anything less than 4.5% on anything. There were some daft introductory deals too in which you start off on - say 5% for the first two years or so after which it drops to 1.5% or 2%.

I'm not surprised the mortgage market has stalled. It's not just that the institutions are reigning who they lend to and how much. It's that rates being offered just aren't a good deal at all. So the consumer is waiting for the banks to offer something at least more in line with the base rate (i.e. base rate plus 1 or 2% on top).

So. Two observations. Firstly it illustrates how the base rate can be too low. Secondly, it shows that the base rate isn't controlling much at all. The banks have no obligation to do anything except to their tracker products.


----------



## Avanti (Jan 17, 2006)

Gavb said:


> This has been a huge benefit to me, we recently moved house and put our whole mortgage on a tracker with nationwide, our monthly payments have fallen considerably however we choose to stick with our original payment every month in effect overpaying and cutting the period of our mortgage.
> 
> However our savings are returning next to nothing in interest so its really swings and roundabouts


This is what I have been doing, so far Im 5yrs ahead of my mortgage :thumb:


----------



## buck-egit (Aug 19, 2008)

Im sitting on a 1.75% mortgage ATM I am gona start paying £250 extra a month should knock a few years off


----------



## chunkytfg (Feb 1, 2009)

We have a B2L property that my missus used to live in before we bought together.

We fixed at 5.45% for 3 years which is up in next month or so and we have just had notification of the banks SVR being 1.75% over BOE base rate which leaves us quicds in. We'll be paying the reduction into it to start paying it off as it is only interest only atm.

Even if it only lasts for a year then we can maybe pay a couple of grand off it helping get us nearer the 75% LTV we need to get tied into another deal


----------



## APK (Oct 6, 2008)

My mortgage is only 0.69%, I have a client sitting on 0.25%, her £1m is now costing her £208pm!! she's quids in, unfortunately her income has taken a similar dive as she is a property developer.

Lenders currently on new deals have massive margins, typically 2.5%+ above base as they are trying to recover lost profits.

The cuts have only really benefitted people on trackers taken a year or so ago, before the margins increased, and people coming off deals and reverting to lenders svr where they have dropped in line with base (not all have, some are still 4+%)


----------

