Credit crunch makes its mark on the base rate reaction too

Lisa Taylor, analyst at Moneyfacts.co.uk, comments on the changes so far in the mortgage and savings market following last week’s surprise 0.25% reduction in base rate:

Mortgages

31 Providers have announced changes to their standard variable rate (SVR)

Six providers have reduced their SVR by less than the 0.25% base rate reduction

Again, some of the larger lenders, Abbey, Cheltenham & Gloucester, Halifax, Nationwide, NatWest / Royal Bank of Scotland and Woolwich have been the fastest to react

“Mortgage rates have moved at a similar pace to the last two rate increases in July and May, where we saw 31 and 37 announcements within the first week. But compare this to the last time we saw rates fall back in August 2005, where 46 lenders had made an announcement; the rate of change now appears to be relatively slow. Its pleasing to see that, with the exception of six of the rate changes, the remainder have been the full 0.25% reduction.

Savings

12 Providers have announced rate reductions across their entire variable rate range, 4 have amended the majority of products while a further 11 have amended at least one of their accounts (typically those linked to base rate)

Most changes tend to be the full 0.25% reduction

Heritable bucks the trend raising its rates by up to 0.20%

“Compared with July and May rate rises, where 20 and 24 providers respectively announced rate changes within the first week, with only 12 so far, this is surprisingly slow. Typically we may expect savers to see their rates cut faster than they rise, but so far this is certainly not the case.

“Bucking the trend, Heritable Bank has announced an increase in its rates by up to 0.20%, securing it a strong hold position in the best buys, especially when we consider that so few other rates have reduced.

“Perhaps savings providers are prepared to absorb some of the cost of the rate reduction and are prepared to maintain rates at their current level in an attempt to secure savers funds. Or it could simply be an issue of timing. Although this latest reduction was foreseen, its timing was a little earlier than many expected. It is also the end of financial account year for many, and with Christmas less than two weeks away, perhaps they don’t want to be branded as the Christmas scrooges.

“This is not the time to be shopping around for a new savings deal. Wait until the market has settled in the New Year.”

“With the financial markets still unsettled and dealing with the ongoing credit crisis, it is no surprise that the market seems to also be reacting differently to this base rate move. Historically we have taken it for granted that virtually all banks and building societies will move their savings and mortgage standard variable rates. But the early signs may indicate this may not be the case this time.

“Only time will tell whether all mortgage borrowers will benefit from the cut or if savers will be fortunate enough to hold on to their current rates.”