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Base rate cuts help few borrowers

It’s time for the Bank of England to stop cutting interest rates on a monthly basis and give us a period of stability so the effects of previous reductions can be assessed.

The latest cut will do nothing for savers and only help borrowers on deals that track the base rate.

Some may argue that it will help new borrowers but again, I believe it will only help a few.

Building societies have to raise at least 50% of their funds from savers and in practice, 70% of society funds are sourced this way.

If savers decide not to save or, as was put to me by Channel 4, buy premium bonds instead, this will do nothing to boost the availability of funding for new mortgages.

This problem is not only relevant to the mutual sector but given the turmoil in the wholesale funding markets in the past year, banks are also realising the importance of attracting deposits.

I might think differently about this subject if reductions in the base rate gave consumers a feeling of having more money in their pockets and the result was that they increased their spending on the high street.

But instead, many of those fortunate enough to be on tracker deals are simply maintaining their original payments and reducing their debt.

Let’s look on the bright side – we may see some of the lowest rates for new borrowers for many years, which should please brokers. But I expect many of these will only available to buyers with hefty deposits.

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