Media Centre
Press release
FURTHER INTEREST RATE CUTS WILL DAMAGE SAVERS AND NEW BORROWERS
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Contact: Neil Johnson Date: 2 Feb 2009 |
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The Building Societies Association has today called for the Bank of England not to cut the base rate further on Thursday.
Adrian Coles, Director General of the BSA, said:-
“The cuts in interest rates have had a severe impact on savers. The reductions, from 5.75% prior to the run on Northern Rock in 2007 to 1.5% have seen incomes from savings drop by almost 75%, although the full impact of the base rate cuts has not actually been passed on to many savers.
“This drop in income is particularly serious for pensioners who have saved all their lives and now face a sharp reduction in their income and living standards. For pensioners dependent upon their interest income from their savings rather than their pension, prices would have to fall by an unimaginable 75% for them to maintain their living standards.”
Mr Coles acknowledged that falling interest rates have benefited variable rate mortgage borrowers, but said that mortgage availability is now a greater concern to borrowers than costs. He said:-
“The BSA’s Property Tracker survey found that affording the monthly mortgage payments was considered a barrier to home purchase by 37% of respondents in December, down from 70% in June 2008 as interest rates fell. However, concerns over getting a large enough mortgage or getting a mortgage altogether increased from 49% to 56% over the same period.
“So mortgage availability, rather than the cost of mortgages, has become a more pressing issue over the last few months. This suggests that what is important to potential borrowers is maintaining the flow of mortgage funds to the market rather than reducing interest rates further.
“Building societies and their subsidiaries were responsible for 62% of net lending in the fourth quarter of 2008 - a further reduction in interest rates now will make people even less likely to save and disrupt further the flow of funds into the mortgage market, which is already significantly short of lending potential.
“We need to ensure that those with at least some capacity to supply funds for mortgage lending - personal savers - are encouraged to do just that, and that requires the MPC to refrain from making further cuts to the Bank Rate at least until the impact of recent reductions becomes clearer.”
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Contact:-
Paul Broadhead
Head of Mortgage Policy
BSA
Tel: 020 7520 5917
Out of Hours:-
Neil Johnson
Mortgage Policy Advisor
BSA
Tel: 07908 764549
The Building Societies Association (BSA) represents all 55 building societies in the United Kingdom. Building societies have total assets of £380 billion and, together with their subsidiaries, hold residential mortgages of £250 billion, more than 20% of the total outstanding in the UK. Societies hold about £235 billion of retail deposits, accounting for more than 20% of all such deposits in the UK. Building societies also account for about 37% of all cash ISA balances. Building societies employ over 51,500 full and part-time staff and operate through more than 2,000 branches.
Photographs of Adrian Coles are available from the BSA press office, or from the Association’s website at www.bsa.org.uk or Headlinemoney www.headlinemoney.co.uk
The figures quoted from the Property Tracker survey are from You Gov plc. Further details can be found at : http://www.bsa.org.uk/mediacentre/press/bsa_property_tracker_dec08.htm
