In the wake of a change in the base rate comes the waiting game to see what lenders will do with their variable rates. Will they pass on the precise rise or be tempted to throw in a little bit more for good measure?
Whether this is a margin-widening process has to be considered, alongside what lenders do with their savings rates. Sadly, it is often the case that savers see less of a rise and borrowers more of one as institutions alter their rates because the base rate change necessitates a review.
Why do we need to wait so long for lenders to make up their minds as to how much they will edge up? At the time of writing, only Halifax and Nationwide of the larger lenders have announced what they will be doing with their respective variable rates. In both cases, they increased them in line with the BoE. But when the BoE’s rate rise had been so widely predicted, you would have thought more lenders would have put some serious thought into how they would react to an increase following the announcement.
No doubt it is a complicated exercise to map out the effects of rate variations on performance forecasts, but it smacks of lenders waiting to see what tack their competitors will take rather than making a straightforward decision on how they intend to react.
It must be better for lenders to make quick decisions rather than holding off for weeks. In some cases, perhaps more cynical motives are in play. You have to wonder if they are hoping to edge through a rate increase greater than the BoE’s base rate rise without prompting the media interest that a quicker decision would provoke.
It is also hard for consumers, spurred into shopping around by the rate rise, to compare products. Discounted deals can look artificially attractive as we wait for lender decisions on their SVRs. But a fast moving lender should not have to lose out to one that is slow to act.
Even some trackers will not see their pay rates alter until the following month, giving them the potential to look more competitive than they really are. Even though a rate alteration comes into effect at the beginning of the following month, a new borrower applying is simply not going to benefit from the lower rate.
Imagine how much easier life would be if lenders simply increased savings and borrowing rates immediately by the same margin as the BoE.