True cost of keeping lending wheels oiled

The Bank of England\'s base rate cut to just 1.5% is a clear indication that the economy is running out of options.

But who is the rate cut aimed at? Cutting the base rate won’t help the lack of credit – 40% of savings accounts now pay just 1% or less, while 7.5% now offer only 0.1%.

In the mortgage market, while some lenders are passing on the cuts to borrowers, on the whole home buyers aren’t seeing the benefits either. Those on tracker or discount mortgages won’t see a cut below the level of their collars.

If the rate hasn’t benefited savers and has not helped existing mortgage borrowers, how about first-time buyers?

Lenders rates might be low and mortgages cheap compared to six months ago, but 60% of deals require a deposit of 25% or more and those with the most attractive interest rates ask for a 40% deposit.

That’s out of the reach of most first-time buyers. What’s more, while the base rate may be low, LIBOR is much higher and many lenders can’t afford to pass on the rate cuts in full and stay profitable.

It’s a dire situation for brokers too. They want to offer clients the best deals, but with lenders struggling to keep their books profitable, it’s no wonder they are taking their best products direct and cutting proc fees.

The government’s latest scheme is a taxpayer-backed facility to underwrite loans in the hope of oiling the wheels of lending, but at what cost? Is this a well thought out policy with substance or just another blind attempt to lift us out of recession? I fear it’s the latter.