Press release

BSA comments on MPC Rate decision

4 August 2016

Today the Bank of England's Monetary Policy Committee (MPC) reduced the Bank Rate to 0.25%.

Commenting on the decision, BSA Chief Economist, Andrew Gall said:

“The Bank’s actions will hopefully support the confidence of households, and in particular businesses, to continue to spend and invest in the UK economy. In recent years building societies have accounted for most of the growth in UK mortgage balances, and they continue to lend actively, so will look with interest at the detail of the Term Funding Scheme. As the cut in the Bank Rate feeds through to influence other interest rates it will benefit some mortgage borrowers, though it will clearly not be welcomed by savers.”

For mortgage borrowers and homebuyers:

  • Around 80% of new lending is on fixed rates, about half of all outstanding mortgage balances.
  • The pricing of mortgage products also depends on factors such as demand, funding costs, appetite to lend and competition.
  • Mortgage supply is strong and is expected to remain so.

For retail savers

  • The environment has been tough for savers since 2009 and we recognise that this cut will do nothing to alleviate their situation.
  • Whilst a blanket cut in line with the Bank Rate is not anticipated across all products, some rates will inevitably fall as a result of today’s action.
  • Historically savings rates have tended to be a proportion of the Bank Rate.Today the best paying accounts offer a multiple of the Bank Rate.
  • Within the external environment, building societies continue to do what they can to support loyal savers, often paying a slightly higher rate to existing savers with closed issue accounts.They are acutely conscious that they have around 6 savers to every 1 borrower.
  • The pricing of savings rates is not only a factor of the Bank Rate but items such as competition, liquidity and mortgage demand.

Resilience of retail banks and building societies

  • Building societies are well capitalised both in absolute terms and in comparison with the UK’s big five banks.  The average building society Core Equity Tier 1 capital ratio is 18.4% compared to 12.5% for the big banks (weighted data from 2015/16 financial year for building societies 2015 financial year results for the big five banks).
  • Average profitability at building societies has recovered since the financial crisis and in 2015 increased to reach the highest level for 15 years, at 0.45% of mean assets. 2016 Half year results published to date have been robust.



The BSA Team

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