Fewer than half of lenders have failed to pass on the cut in the Bank of England base rate to borrowers on Standard Variable Rates, new figures show.
Analysis by Moneyfacts.co.uk, the price comparison website, found that a number of lenders also hiked the price of variable rates on offer to new borrowers in anticipation of the base rate cut.
This meant they could then reduce the cost again after the base rate cut and it would appear to be in response to the Bank of England decision, even though consumers would not make a saving in real terms.
|Average Rates||1st August||Today|
|Standard Variable Rate (SVR)||4.80%||4.71%|
|Source: Moneyfacts.co.uk||Compiled: 1.9.16|
Moneyfacts finance expert Charlotte Nelson says: “Whilst the picture for borrowers isn’t bleak, it is definitely a mixed bag. Borrowers would have assumed that a 0.25 per cent cut in base rate would make them financially better off, particularly if they were on a variable rate.
“However, this is unfortunately not the case, with just under half of providers failing to pass this cut on to their Standard Variable Rate (SVR) customers.”
Nelson says that given the bumpy road ahead for the economy, some providers are still quite cautious in their reaction to the Bank’s interest rate decision, with many choosing to wait and see to ensure they get the timing right.
She points out that with rates at all time lows, borrowers sitting on their SVR would still be better off opting for a fixed rate. For example, borrowers would be £243.03 a month better off based on the average two-year fixed rate at 2.46% compared to the average SVR of 4.71%. (Based on a £200,000 mortgage over a 25-year term on a capital and interest repayment basis.)
Nelson adds: “The average two-year tracker rate has been reduced by 0.19 per cent, so borrowers looking for this type of deal would have seen a better picture.
“However, shockingly some providers, preempting the announcement, chose to increase their variable rate products, meaning the reductions have been offset.
“To illustrate this, at the start of July the average two-year variable tracker rate stood at 2.01 per cent. This had increased by 0.12 per cent on August 1, therefore reducing the effect of the reduction in the month of August to 0.07 per cent in real terms.
“As rumours start to build about a second reduction to base rate and mortgages are falling to record lows yet again, borrowers and providers alike are questioning how low these deals will actually go.”