People in need get no benefit (From The Northern Echo)

People in need get no benefit

12:56pm Friday 6th February 2009 in Search

STRANGE but true – the people who most need to save money at present are not benefiting from our current cost-saving measures.

Most homeowners will not save on their mortgage following yesterday’s Bank of England base rate cut, as many lenders are refusing to pass on the reductions.

Since October, the bank has slashed rates five times to one per cent, but fewer than 30 per cent of lenders have passed on the full benefit of last month’s cut, according to financial information firm Moneyfacts.

The most generous lender has been Lloyds, now partowned by the taxpayer, which has passed on the whole cut to its standard variable rate. On an average loan of £150,000, this saves more than £300 a month. But other lenders have managed cuts of only £70 a month.

Also, only ten per cent of Britain’s 11.7 million homeowners with a mortgage have a standard variable rate. Half are on fixed-rate deals, while others have trackers with “collars”, which means their rate can go no lower than a certain level. Most will therefore not benefit.

The picture is also somewhat cloudy when it comes to new mortgage deals.

Sure, there are some fantastic headline rates out there from as low as 3.39 per cent, a figure we could only dream about last year. However, the restrictive terms such as low Loan to Value (60 per cent in some cases) and minimum earnings levels make them unobtainable to the masses. This, combined with larger establishment fees and shorter-term nature of the deal, suddenly makes them seem less attractive.

Another example of lenders not fully passing on the reductions is a case that I was recently involved with.

Last year, I arranged a mortgage with a lender on an offset base rate tracker deal of base rate plus 0.64 per cent. Pretty standard at the time, however, looking back, what a fantastic deal it looks now. Only 12 months later, this particular lender is now offering the exact same product at a rate of base rate plus 2.49 per cent.

While I appreciate this still equates to a payment rate of 3.99 per cent, which in the bigger scheme of things is still very low, it does mean that the lender is earning an extra margin of 1.85 per cent compared to this time last year. That is a benefit that could have been passed on to the consumer.

These increases in margins are part of the reason for the Bank of England reducing the base rate by so much, so that at least, somewhere in the food chain, the savings are being felt. Unfortunately, this is not always working and lenders need to become more generous with their offerings.

■ Karl Pemberton is director of Active Financial Services, of Guisborough.

He can be contacted on 01287- 632367 or through activefinancial services.co.uk and will be answering readers’ financial questions in a biweekly column. Topics you would like to see featured in his column can be sent to echobusiness@ nne. co. uk The information contained in this response should not be relied upon as general advice and is for general information only. We always recommend you seek independent financial advice before embarking on any financial decisions.