‘Term funding scheme contributing to drop in SVRs’: Bank of England

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The Bank of England term funding scheme is working and leading to lower SVRs, according to BoE deputy governor Minouche Shafik.

In a speech today, Shafik said the TFS is letting lenders pass on the 0.25 per cent base rate cut.

Shafik said: “The initial signs are good – standard variable rates have already been, or, we expect, shortly will be reduced on the vast majority of existing mortgages and the rates available on new lifetime tracker mortgages are on average 25bps lower.

“Though it is of course difficult to say how much of this is attributable to the TFS.”

The term funding scheme was announced in August when the Bank cut base rate from 0.50 to 0.25 per cent.

The scheme is funded by central bank reserves. Chancellor Philip Hammond says this could reach £100bn, but that this depends on demand.

At the time, the Bank said: “The cut in Bank rate will lower borrowing costs for households and businesses.  However, as interest rates are close to zero, it is likely to be difficult for some banks and building societies to reduce deposit rates much further, which in turn might limit their ability to cut their lending rates.

“In order to mitigate this, the MPC is launching a Term Funding Scheme that will provide funding for banks at interest rates close to Bank rate.

“This monetary policy action should help reinforce the transmission of the reduction in Bank rate to the real economy to ensure that households and firms benefit from the MPC’s actions.”