Savers, analysts suggest, would get much less reward while borrowers would still not find it as easy as expected, in spite of the BoE’s several interventions, bringing down the interest rates to a record low level.
Refusal to pass on rates cut
Like the last base rate cut in February the recent one has been followed by refusal from some lenders to pass on the cut to borrowers. In the latest case, Royal Bank of Scotland and its NatWest subsidiary have already said they would not pass on the cut to standard variable rate mortgage borrowers. They have insisted on keeping their standard variable rate at 4 per cent, while arguing that the need of savers must be taken into consideration as well. Interestingly, the banks are among those that have benefitted from the government’s bailout, leaving huge bills on taxpayers.
Other lenders are expected to follow suit by keeping their existing variable rate mortgages on hold. In February a similar trend was seen as most banks and building societies failed to pass on the cut on SVR.
However, a few others have confirmed their readiness to pass on a full half point cut to customers. These lenders include Lloyds TSB, Nationwide, Halifax and Skipton Building Society.
Saver and borrower needs
However, even as it would not pass on the rate cut on SVR, RBS claimed that its SVR remains very competitive and that less than 50 per cent of its borrowers were on SVR. In the same vein the bank added that its customers on tracker mortgage deals would still enjoy the full benefit of the base rate cut.
Just as it mentioned that catering for the needs of savers and borrowers was a priority, RBS said it was also cutting saving rates by less than 0.2 per cent on average.
Commenting on the impact the BoE base rate has had on customer savings rates chief executive of RBS Paul Geddes said the effect was huge, adding that considering both their savings and mortgage customers when determining any rate changes was now more important than ever.
Current account charges
Apart from the refusal to pass on the cut another significant issue that could arise is the possibility that banks could start charging customers on current accounts. At the moment banks run free current account banking but experts believe this week’s cut might put an end to that.
The fear is further fuelled by the mass withdrawal of money by savers following the announcement of the cut. A combination of dwindling margins and a shrinking market will certainly have a significant impact on banks. Thus, searching for alternative sources of profit will be inevitable and current accounts are most likely to be targeted.
Currently most banks have packaged deals in which customers pay a fee for an account with additional features. Such services like travel insurance and mobile phone insurance are add-ons for which customers make payments. But whether or not banks will introduce similar charges on basic current accounts remains to be seen.
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