Bank decision leads to mortgage rate cuts

10 July 2003
Leading mortgage lenders are expected to follow the Bank of England's decision today and cut interest rates to 3.5 per cent.

Sainsbury's Bank and The One account have already announced cuts to their mortgage rates and several others are expected to follow suit.

Pressure had been growing for the Bank's Monetary Policy Committee (MPC) to make the cut.

The base rate of interest is now at its lowest point for 48 years.

If the saving is passed on to consumers it could translate as a saving of £12 a month on an average £80,000 mortgage, according to figures from the Nationwide.

However, many analysts do not believe all lenders will pass on all, or even part, of the saving to consumers, fearing a further cut in rates would leave deposit savers earning minimal interest payments.

Nationwide forecast that today's cut would have little effect on the housing market slowdown.

"It's not going to have a huge positive impact on the housing market," Alex Bannister, Nationwide group economist, said.

"The factors driving the slowdown are the weakness of the labour market and less speculative behaviour in the South East.

Michael Coogan, director general of the Council of Mortgage Lenders, commented on the interest rate decision, "The Bank's forecasts suggest a slowing down in house price growth to zero over the coming year, and although we expect to see positive growth continue, we firmly believe that the housing market is achieving a natural slowdown.

"So this rate cut is unlikely to further stimulate the demand for mortgages. Lenders will be watching the markets and considering funding issues in deciding how to react to today's rate cut."