Although we hope all lenders pass on the rate cut, Carney may have acted a bit too soon. With the hint of a further cut to almost zero, there must be some tense boardrooms at the moment
So, after months of talk and spin, plus a few red herrings, Bank of England governor Mark Carney finally gave the baying crowd what they thought they wanted: a rate cut to a new historical low of 0.25 per cent.
But not just a cut; rather, a package of incentives designed to stave off any sniff of a recession as a result of the Brexit vote.
This time there is no doubt Carney had to deliver, having seemingly talked himself into a corner that would have caused far-reaching credibility issues if he had done nothing again. However, I think he has acted a little too early, with the risk of potentially diluting a more powerful weapon to use in the future should the need actually arise.
However, while there is more than a little doubt over the effectiveness of the rate cut, this decision is coupled with more quantitative easing to the tune of £60bn and a new plan to buy up to £10bn of UK corporate bonds.
Then there is the real crux of the matter: the new ‘term funding scheme’. This is designed to “offset the pressure lower interest rates place on bank profitability”, according to Carney.
In essence, it allows banks to borrow at 0.25 per cent, capped at 5 per cent of their loan book and as long as their total lending does not fall. This could free up an additional £100bn.
In his speech, Carney pulled no punches in his message to lenders, telling them they had “no excuses” for not passing on the rate cut to consumers immediately.
It will be a brave lender that ignores this pressure and anyone that dares to take on the governor is likely to be subjected to immediate criticism.
Of course, we know that for some lenders it is not as simple as magically pressing a button and reducing rates. Costings, impact on profits, systems, products, marketing and the like all have to be aligned, but I hope all lenders will be able to apply the cut in full.
With the hint of a further rate cut to close to zero, there must be some tense boardrooms at the moment.
Now it is over to the new Chancellor to provide support from that direction.
In the markets this week, three-month Libor has dropped further to 0.49 per cent while swap rates have fallen again, as you would probably have expected.
2-year money is down 0.06% at 0.42%
3-year money is down 0.06% at 0.43%
5-year money is down 0.05% at 0.49%
10-year money is up 0.01% at 0.88%
It will be an interesting time product-wise. Will rates fall or will some products rise slightly to make up for cuts to variable rates?
Other side-effects could include, in fact, an increase in affordability because borrowers may now be able to borrow a little more as stress-testing rates ease. Also, could slightly lower rates dilute some of the tax changes in buy-to-let and entice landlords to return?
I like Nationwide’s five-point plan to help consumers, which includes things such as minimising costs for first-time buyers and maintaining low-deposit lending as well as trying to protect savings rates. Also on the card is a Brexit consumer support panel and a £10bn-a-year commitment to lend to first-time buyers.
Clydesdale Bank has reduced a swathe of rates and added new 60 per cent LTV residential products with a two-year fix at 1.69 per cent and a five-year fix at 2.19 per cent. Skipton has also reduced rates by an average of 0.25 per cent on two- and five-year fixes.
Tesco Bank has increased its mortgage offer period from three months to six months and reduced rates on five-year fixed products, while Metro Bank has introduced its new-look intermediary website. It will also now consider up to four applicants.
TSB will no longer lend on ex-local flats above four storeys and has reduced rates for loans up to 85 per cent LTV. However, rates have increased between 85 per cent and 95 per cent LTV.
Accord was hot off the mark cutting buy-to-let rates by up to 0.3 per cent on fixed rates. It has also enhanced its remortgage range with new three- and five-year fixes starting from 2.59 per cent.
Precise has cut more rates, reducing limited company buy-to-let rates by up to 0.55 per cent and buy-to-let product fees to 1.5 per cent on all two- and five-year fixes.
Market Harborough has extended its ex-pat range to include those in Australia.
Finally, I wish you all happy and relaxing summer holidays. Take time to chill as I suspect the last quarter of the year will be a busy one.