uSwitch.com: Bank of England base rate cut

In response to today's decision by the Bank of England to decrease the base rate by 1.5% to 3%, Louise Bond, personal finance manager at uSwitch.com, the independent price comparison and switching service, comments: "Today's base rate cut will be welcome news for tracker mortgage customers. They will enjoy a monthly saving of around £134.46 totalling £1613.52 a year. However, many consumers will not see any benefit at all.

"Although the Bank of England has attempted to help the sinking economy this year with four base rate reductions, sadly there is no enforcement in place to force mortgage lenders to pass cuts onto consumers. The three month Libor rate (London interbank offered rate) is the real problem for banks as it only started to decline in the last month and has since dropped to 5.68% - this is still 2.68% higher than the base rate. The fact that this rate has remained high is a clear indication that banks are just as fearful of lending to each other in this climate as they are to consumers.

"Some providers have already pre-empted further base rate cuts by putting clauses into tracker contracts which will not allow the rate to fall below a certain threshold. This will be particularly interesting going forward as Halifax Bank of Scotland (HBOS) will not cut tracker rates below 3% and Nationwide Building Society also refuse to pass on any decreases if the base rate sinks lower than 2.75%.

"Consumers looking for a new mortgage could also be disappointed. There is no guarantee that providers will launch new tracker deals with lower rates to reflect the latest cuts. Despite a 3.75% base rate reduction already this year, the average rate on a tracker is still 0.04% higher than it was this time last year when it stood at 6.23%. In fact, just this week we have seen Abbey and Intelligent Finance both increase their rates on tracker deals which is a real kick in the teeth for borrowers. Anyone taking out a tracker deal with these providers will effectively be paying the same rate as before, which means neither provider will lose out when the tracker rate drops.

"Since the emergency cut in October, only 50% of all lenders have passed on any reduction to customers, whilst 82% of lenders have not passed on the full 1% reduction from the last three base rate cuts."