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The Bank of England today decided to reduce interest rates to 1½%, the lowest interest rate in the banks 314-year history since it was founded in 1694. The Bank of England’s reason for another reduction in the base rate is their concern about inflation, the cost of importing sterling in international markets is too weak; They are concerned about the loss to savers and want to prevent this downturn from turning into a full-blown depression. Banks have the task of getting enough money, keeping savers happy and mortgage borrowers in balance to pay off their mortgages.
The cause of this financial turmoil began with the credit crunch.
A credit crunch occurs when there is not enough credit or money available. The Bank of England has reduced interest rates to encourage bank lending and make borrowing more affordable. This hasn’t helped the money supply crunch as there is still not enough money to start with and people who want to borrow money to buy a house or invest in a business still don’t have the money they need to borrow. Will be able to get It does not matter how low the interest rate is if sufficient funds are not available.
When will the Bank of England wake up and realize that if they cut the base rate further, they will be punishing the same people who save money from all the banks, building societies and investment funds. It is believed that there are more savers than borrowers in the United Kingdom. If we have to come out of this recession, we have to reward savers with reasonable interest rates. We need to recognize the importance of savings if we are planning to get out of this recession.
Who are the winners and losers from today’s interest rate cut?
Unfortunately, there are more losers than winners. Pensioners who depend on the interest earned on their savings to top up their often insufficient pensions may see their savings income shrink further today. Today there are over 80 savings accounts paying less than ½% per annum. It is estimated that 38% of current savings accounts are paying 1% or less per annum and more than three quarters of savings providers have announced that they are offering full rate cuts to savers. declared by England.
If the interest rates charged by banks and building societies fall to 0% you will find savers paying banks and building societies for the privilege of looking after their savings, this has happened in the past. Advice to savers, you need to shop around for the best interest rates and make sure you don’t save more than £50,000 in each savings account so that you are protected by the government in the event of a bank failure. Life is more difficult for savers who prefer to save rather than spend. Savers have invested around £1 trillion and borrowers account for around £1.5 billion and there are currently more savers than borrowers.
Not all mortgage borrowers will benefit from today’s fall in the Bank of England’s base rate. In general, homeowners with mortgages on tracker rate mortgages have fared very well with the recent decline in the base rate. But now they are finding that some mortgage lenders are unwilling to pursue base rate cuts. The devil appears in the details of their mortgage contract because some lenders have a collar clause that means they will not drop their mortgage below 2% no matter how low the interest rate drops. Nationwide has said that they will not cut interest rates any further.
Mortgage borrowers on fixed rate mortgage deals will see no change in their monthly mortgage payments. Some mortgage providers have said they will not pass on any base rate reduction to their borrowers on their standard variable rates. Other lenders have said they will pass on some part of the cut to customers. Nationwide, HSBC and Lloyds TSB have said they will pass on some of the reductions on their standard variable rate (SVR) to their borrowers.
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