Current accounts and loans abandon the base rate

Financial product providers often come under fire for failing to pass on base rate movement in a bid to increase profit margins, but new research shows some areas are bucking the trend.

Figures from moneysupermarket.com show the margin between the base rate and loans has never been so narrow, meaning consumers will now find better value in a loan than they did four years ago. For example, the base rate now stands at 5.5 per cent and the best loan rate is 5.9 per cent with Masterloan – a difference of 0.4 per cent. In March 2003, the base rate was 3.75 per cent, but the best loan rate was 6.7 per cent with the Co-op and Lombard, a difference of 2.95 per cent – about a seven times greater margin.

Tim Moss, head of loans at moneysupermarket.com, said: “Loans have never been so cheap. Tracking loan rates from March 2003 to date there is no direct correlation with the Bank of England base rate movement. In fact, as the base rate has risen, typically loan rates have fallen. This means the profit margins are narrower then ever for the loans providers and consumers are getting a damned good deal.”

Loans are not the only product areas privy to behaviour uncorrelated to the base rate. In March 2004, the leading current account rates were around 3.5 per cent against a base rate of four per cent – a negative margin of half a per cent. However, current account rates have rocketed over a short period of time and have for the past couple of years surpassed the base rate. In April 2007, the leading current account rates were averaging 6.32 per cent – a positive margin of over oneper cent against the base rate of that time of 5.25 per cent.

Kevin Mountford, head of current accounts at moneysupermarket.com, said: “Current account rates have improved steeply in a relatively short period. This is the best indication inertia reigns in this market and proof providers are having to work exceptionally hard to attract new current account customers. Once again this puts consumers in a very strong position.”