This is a rate cut too far

Some lucky interest-only customers are now paying as little as 8p a month for their mortgages in the wake of the Bank of England\'s 0.5% base rate cut last week.

Lloyds Banking Group’s Cheltenham & Gloucester brand has some borrowers on a tracker deal at base rate minus 1.01%, leaving them with minimum payments of 8p. Whether this is good news for a banking industry that has been brought to its knees in the past year and when 43p in every 1 spent by Lloyds Banking Group is effectively taxpayers’ money is another matter.

As incentives to kick-start lending go, cutting interest rates is pretty weak. Our record low 1% base rate means there is now zero incentive for consumers to save, cutting the lifeline of many lenders. No saving, no lending – simple. With most lenders slashing their SVRs by the full 0.5%, the throat of a remortgage market already on its last legs has effectively been slit.

Meanwhile, dual pricing has also come to the fore again. The main reason for this seems to be that by using only their branches lenders can pay lip service to government decrees on affordability while serving a restricted number of borrowers.

On top of all this, HSBC has come up with what it describes as an SVR-beating fixed rate of 2.99%. As one market pundit exclaimed last week, with HSBC not offering products to the intermediary market it’s also a broker-killer.

The government must realise that brokers are the lifeblood of the mortgage market and Prime Minister Gordon Brown and chancellor Alistair Darling should try some joined-up thinking when they tackle its woes. Yes we’re in a recession but reducing the public’s access to finance and thereby hampering their ability to restructure debt is not the way to go.