Interest rates

[tiggerblue10]

Last month the BofE announced an interest rate cut of 0.5%. My saving earn interest every month so when I checked on 1st Nov I didn't get as much interest as previous month which I expected. I then went to my mortgage lender and asked when the interest rate cut would take effect on my monthly payments and I was told that the interest rates on mortgages would not be cut.

I don't understand why this is. Surely if there is a cut in interest rates then it would be for mortgages payments as well! Could someone please explain this to me.

Thank you

[Uttingbuzz]

Well first and foremost it would depend on the deal you are on anyway, so if you are on a fixed rate mtg the rate wont change whether rates went up or down. If you are on a Discounted deal then it is the discretion of the lender/bank as the discounted products only actually guarantee the rate will be in comparison to their individual banks base rate rather than the BofE, this way the lenders can change the rate as when they wish and with the crisis we are in at the moment they are deciding more often than not to keep the rates as they were rather than pass the discount on to the customers, mainly because of the customers that dont keep up their repayments costing the banks so much money. (therefore we suffer for the freeloaders!!!)

If you are on a tracker your rate should be changing as your mortgage contract should state the rate follows the Bof E rate and this is the only product where you are guaranteed to have the bank change the rate in line with the Bof E changes.
Therefore unfortunately this would suggest you are not on this type of product and not one of the others. Hope this helps! Sucks doesnt it!!!!

[R1Geezer]

All "deals" aside, what you are referring to is a lender's standard variable rate. You'd think that they would cut it in line with he bank of England, often they do, but traditional lenders have a lot more savers than borrowers, they have to consider them too, ie if savers move their money the re is less available to lend. The BOS base rate is only a guide in reality he lenders can do what they like.

[Maypole]

Tigger, I think we probably all realise now that banks dont have huge amounts of cash around to lend yto us consumers. Instead, they borrow it themselves.
The rate at which banks borrow money (which they then lend you) is not the same as the Bank of England rate - they have their own money market rates (wholesale, if you like).

So, a Bank's decision to cut rates will be more dependant on the LIBOR rate than the BoE rate. Although historically close, the LIBOR rate is a fair bit higher than the BoE rate (and that was before yesterdays slash). So, if they were to pass on the rate cuts immediately the Bank would be paying a higher interest rate than you would be and they would be making a loss.

Try this: http://www.telegraph.co.uk/finance/personalfin ance/borrowing/mortgages/3386953/Lenders-faili ng-to-pass-on-rate-cuts-are-not-profiteering.h tml