The Building Society Association (BSA), representing the interests of the remaining building societies in the United Kingdom, warned today that they wish to see no further rate cuts from the Bank of England
As I have mentioned before - as the Bank of England cut interest rates to try and lower the cost of borrowing (with only limited effect); savers have found their savings rates slashed!
This is a real problem to Building Societies and other lenders. Savers place money on deposit with a bank or building society, who then lend out. This is how credit is created in a balanced economy.
Savers are now looking for a new home for their savings. British banks and building societies now offer very low savings rates. As a consequence, savers are placing money on deposit at foreign banks such as the Dutch bank, ING. This is making things worse for British lenders who are already short of money. Low rates will further damage the supply of credit. We believe in turn that this makes the low rates we will see in 2009 unsustainable.
As the lenders themselves start to warn against further rate cuts; borrowers who are "sitting on the fence" and are waiting for further rate cuts should take note. We await the Bank of England response which is due this Thursday.
UPDATE 24/2/2009
For many, it came as no surprise that the Bank of England base rate was cut further. Despite warnings from the lenders themselves that further rate cuts would have little or no effect on new borrowing rates. The minutes of the last Bank of England meeting suggest the Bank are going to look at other measures to help the economy and lending. In particular, they will be using a measure called 'quantitative easing'to increase the amount of cash in the economy. It is hoped that by flooding banks with cash, interest rates charged by lenders will ease and, at the very least, the amount of lending will increase. I think March will be a very interesting month as we see something other than rate cuts being utilised which will set the tone for mortgage lending for the rest of the year.
http://news.bbc.co.uk/1/hi/programmes/the_daily_politics/7925669.stm
