Bank urged to protect savers
The Building Societies Association has urged the Bank of England not to reduce its rate any further as recent swinging cuts are hurting savers. The Bank is widely expected to reduce Bank Rate for the fifth month is a row this week, from 1.5% to 1%, the lowest rate since it was founded in 1694.
Adrian Coles, director general of the BSA, said the cuts in interest rates, which have fallen rapidly from 5% at the beginning of October, had had a severe impact on savers.
He said: “The reductions, from 5.75pc prior to the run on Northern Rock in 2007 to 1.5pc, have seen incomes from savings drop by almost 75pc, although the full impact of the base rate cuts has not actually been passed on to many savers.”
The BSA, whose members account for more than a fifth of all mortgage lending and more than a fifth of all savings accounts, also pointed out that a rate cut would mean trouble for pensioners dependent on their interest income from their savings rather than their pension.
Mr Coles said: “Prices would have to fall by an unimaginable 75% for ”find out more” href=“http://yourmoney.com/save_invest/pension/” target=”_blank”>pensioners just to maintain their basic living standards.”
Falling interest rates have benefited borrowers with variable-rate mortgages, but the BSA said research had shown that mortgage availability was now a greater concern to borrowers than costs.
Typically, lenders favour lower interest rates as they make it cheaper to borrow and stimulate house buying. But Coles said the difficulty of saving a large enough deposit and obtaining a mortgage was now far more of a problem for potential house buyers than the cost of repaying the interest on their loans.
He said: “Mortgage availability, rather than the cost of mortgages, has become a more pressing issue over the past few months. This suggests that what is important to potential borrowers is maintaining the flow of mortgage funds to the market rather than reducing interest rates further.
“We need to ensure that those with at least some capacity to supply funds for mortgage lending – personal savers – are encouraged to do just that.”