Under half of providers have failed to pass last month’s base rate cut on to their Standard Variable Rate customers, analysis from Moneyfacts reveals.
August’s base rate change to 0.25% – the first movement in interest rates since March 2009 – was the lowest seen in the UK for more than 300 years.
The nine-strong Monetary Policy Committee had previously voted to keep the interest rate at 0.5% for a total of 88 months.
But Charlotte Nelson, finance expert at Moneyfacts.co.uk, said:“Whilst the picture for borrowers isn’t bleak, it is definitely a mixed bag. Borrowers would have assumed that a 0.25% cut in base rate would make them financially better off, particularly if they were on a variable rate. However, this is unfortunately not the case, with just under half of providers failing to pass this cut on to their Standard Variable Rate customers.”
She added that since the mortgage market had not experienced a base rate change for many years, it was always going to be difficult to predict how providers were going to react.
Nelson said: “Given the bumpy road ahead for the economy, some providers are still quite cautious in their reaction to this new turn of events, with many choosing to wait and see to ensure they get the timing right.
“With fixed rates at all time lows, borrowers sitting on their SVR would still be better off opting for a fixed rate. For example, borrowers would be £243.03 a month better off based on the average two-year fixed rate at 2.46% compared to the average SVR of 4.71%.
“The average two-year tracker rate has been reduced by 0.19%, so borrowers looking for this type of deal would have seen a better picture. However, shockingly some providers, preempting the announcement, chose to increase their variable rate products, meaning the reductions have been offset. To illustrate this, at the start of July the average two-year variable tracker rate stood at 2.01%. This had increased by 0.12% on 1 August, therefore reducing the effect of the reduction in the month of August to 0.07% in real terms.
“As rumours start to build about a second reduction to base rate and mortgages are falling to record lows yet again, borrowers and providers alike are questioning how low these deals will actually go.”
|Average Rates||1st August||Today|
|Standard Variable Rate (SVR)||4.80%||4.71%|
|Source: Moneyfacts.co.uk||Compiled: 1.9.16|