Lenders pledge to pass rate cut on to mortgage payers

24 April 2008

Homeowners have been promised a cut in interest rates when the inter-bank lending rate goes down after a Downing Street summit over the credit squeeze between the Chancellor and mortgage lenders.

The pledge will come as a welcome piece of news to more than 1.4 million mortgage holders who are facing a "payment shock" with a steep rise in their monthly repayments when their low, fixed-rate mortgage deals come to an end this year.

Building societies and banks are looking at ways of giving more help to mortgage payers in trouble to avoid a sharp rise in the number of repossessions. They urged mortgage holders who fear they are getting into difficulty to alert their lenders as soon as possible.

'Building societies and banks promised Alistair Darling that they would deal sympathetically with mortgage holders'

Schemes to reduce the repayments burden include offering a mortgage holiday in which those in trouble can avoid payments for a short time, or spreading the mortgage over a longer period to reduce the monthly amounts due.

Building societies and banks promised Alistair Darling that they would deal sympathetically with mortgage holders who run into trouble with their repayments in return for Monday's £50bn injection into the markets by the Bank of England, backed by the taxpayer. The Chancellor assured mortgage lenders that taxpayers' aid to the money markets could rise as banks and building societies bid for more funds from the Bank of England.

In return, the lenders gave a promise to the Chancellor that they will pass on cuts in interest rates to their customers when the inter-banking rate of interest, the rate at which banks lend to each other, is reduced. These rates have stubbornly remained high, despite the Bank cutting interest rates from 5.25 to 5 per cent on 10 April, the third cut since December. But banks remain reluctant to lend to each other and have kept their rates high. Mortgage lenders believe that the inter-bank lending rate will start to fall when the Bank of England's action to increase liquidity feeds through into the market.

Source: The Independent