The Libor rate, the rate at which banks lend to each other, has dropped and is now pretty much in line with the base rate, but lenders need to reflect this with their mortgage rates, says Andy Cuthbert, Managing Director of dot financial services.
His comments follow The Bank of England’s Monetary Policy Committee’s recent decision to maintain interest rates at 0.5 percent.
Cuthbert said: “It was this time last year that we saw the Bank of England substantially reduce the base rate by 1.5, taking it down to 3 percent. A year on and we are continuing to see them held at a historic low of 0.5 percent, which will continue for some time to come.
“Despite further signs of life in the housing market, the gap between mortgage rates and the base rate is still a feature of the credit crunch. Although there has been movement within the market to see some competition from lenders, it is for lower loan-to-value business. High loan-to-value remains the problem.
“It seems wrong to see those with a 10 percent deposit often paying rates in excess of 7 percent.”
While maintaining the base rate, The Bank of England’s Monetary Policy Committee also voted to continue with its programme of asset purchases financed by the issuance of central bank reserves and to increase its size by £25 billion to £200 billion.
A statement from the bank said: “In the United Kingdom, output has fallen by almost 6 percent since the start of 2008. Households have reduced their spending substantially and business investment has fallen especially sharply. GDP continued to fall in the third quarter. A number of indicators of spending and confidence, however, suggest that a pickup in economic activity may soon be evident.
“Inflation is likely to rise sharply to above the 2 percent target in the near term, reflecting higher petrol price inflation and the reversal of last year’s reduction in VAT.
“The Bank’s asset purchases have helped to boost asset prices and improve access to capital markets.
The sterling effective exchange rate lies around a quarter below its mid-2007 level, improving the competitiveness of UK producers.
“On the other hand, the need for banks to continue the process of balance sheet repair is likely to limit the availability of credit. And high levels of debt will weigh on spending.
