You May Not Get The Full Rate Cut
Pundits are predicting a cut in the base rate this Thursday, but borrowers may not get the full cut.
As we head into recession the Bank of England looks set to cut its base rate this Thursday. The cut could be anything up to 1%. However, Fools shouldn't assume that rates on their loans and mortgages will be cut by the same amount. (Of course, Fools on a fixed-rate mortgage won't see a cut at all.)
Look at today's comments from a top executive at HSBC.
David Hodgkinson, the bank's chief operating officer told Bloomberg: `Credit has to be priced appropriately to reflect the risk. If interest rates are brought down significantly, then rates for borrowers will come down. But I'm not going to say it's absolutely linear because it depends on the particular transaction and the risk.'
What's more, HSBC has not received any cash from the UK government's bank bailout, so it can resist calls from Gordon Brown to cut rates and resume lending at 2007 levels.
I suspect HSBC isn't the only bank that is reluctant to make big cuts. We're now in a financial world where there are fewer players and hence, less competition. And recent events mean that banks will be much more focused on minimising risk in the next few years.
Libor
Still, there is some good news out. Libor continues to fall. The premium over the base rate is still exceptionally high, but at least it's falling. Today 3-month sterling Libor edged down from 5.84% to 5.77% while 3-month dollar Libor dropped 17 basis points to 2.85%. It's these falls in Libor that will drive falls in mortgage rates more than any other factor.
More: Some Good News For Borrowers
> Get mortgage advice from The Motley Fool Mortgage Service
Most Recent
Comments
-
Libor anyone?[br/][br/]Does anyone understand how GMAC-RFC work out their (UK) Libor rates. I checked over their Website today and it still show's the Libor as 5.7%, thats a big difference from the BBA's advertised rate of 4.49%. If this is not just a typo than might a lot of mortgage holders be in the process of being ripped off?
REPORT This comment has been reported. -
maskelyne - good luck getting a mortagage - the bank includes a clause that they can change anything at any stage. You will not get a mortgage without accepting this condition. That is why we are going to the FSA and Ombudsman to complain about the unfair contract. [br/][br/]Regards, LOJO
REPORT This comment has been reported. -
When is a tracker not a tracker?[br/][br/]As far as I can see mortgages generally seem to have a get-out clause in the small print somewhere. My main mortgare is a BOE+1% lifetime tracker. Sounds simple, doesn't it - and yes, my mortgage interest rate has been falling in line with the BOE rate - so far, but...[br/][br/]Looked at the small print again - and, sure enough, the get-out's in there. According to the letter of my contract the bank can vary the differential whenever it likes and and the only right I have in this event is to repay the mortgage in full without the admin fee if the differential from the BOE rate goes above 2.5%! And what's the betting the differential will start creeping up if the BOE rate gets very low?
REPORT This comment has been reported.
Do you want to comment on this article? You need to be signed in for this feature
12 November 2008