Borrowers may be scratching their heads and wondering just how the cut to the Bank of England base rate is benefiting them, after recent figures showed that less than half of lenders have so far passed on the 0.25 per cent reduction to SVR borrowers.
Furthermore, a number of lenders actually cranked up their pricing on new tracker deals in the run-up to the Monetary Policy Committee’s widely anticipated August reduction to base rate. It is reminiscent of a supermarket tactic, much criticised by regulators and consumer groups, of ramping up pricing before offering eye-catching, end-of-aisle discounts and special offers calculated against an inflated up-front cost.
Lenders do indeed have all sorts of funding constraints. They need to ensure they have the right mix of products, and be careful not to be so far ahead of the pack on rates as to become swamped overnight by business.
However, wouldn’t it have been far more honest to simply keep their tracker and variable-rate pricing consistent, rather than hike up costs in advance so as to appear to be doing the right thing when cutting rates following the Bank’s decision.
True, borrowers have been enjoying several years of rock-bottom mortgage rates. But let’s also remember that the Bank of England has been generous to lenders with its Funding for Lending Scheme and other initiatives. And savings rates have most definitely been squeezed.
The move by Gordon Brown, when he was chancellor in 1997, to give the Bank of England independence over monetary policy has been generally regarded as a positive because it prevented interest rate movements from being used by politicians to garner voters’ favour.
However, borrowers may be wondering how much power the Bank of England actually has when it comes to influencing the cost of mortgages on the high street. Every month the nine-strong committee sits to decide the official interest rate, but what should customers make of this if they do not see an immediate impact in their pocket?
The Bank of England’s chief economist, Andy Haldane, recently revealed he could not make “the remotest sense of pensions”.
If lenders aren’t careful, consumers may soon start to feel the same way about tracker mortgages.