Homeowners May Not See Mortgage Savings

Posted 2008-01-10

A price comparison website and David Kuo, the head of personal finance for Motley Fool, warned homeowners that any base rate cuts may not mean lower mortgage payments.

Despite efforts by Chancellor Darling, the Monetary Policy Committee (MPC) decided to hold any changes to the base rate in January, added Mr. Kuo.

With many lenders trying to rebuild “their battered business,” says Mr. Kuo, borrowers may not see relief even if the base rate cut is passed in the future. Lenders are not obligated to pass base rate changes on to consumers and they may be less likely to do so now with recent changes in the economy and rising inflation eating into profits.

Mr Kuo added: “Therefore, many homeowners are unlikely to reap the benefits, even though there are indications that the Bank of England may continue to cut interest rates to stimulate the flagging British economy.”

Although the credit crunch was greatly created by large banking institutions lending monies to individuals who were barely qualified to repay their loans - often in the form of sub-prime mortgages – many banks now seek to recover much of the losses they originally designed for the fast money that was pouring in while the over-lending went unchecked.

With lenders unlikely to lower mortgage repayments and pass some relief to borrowers, the level of personal debt and insolvency is expected to rise this year, according to James Falla, director of advice service Thomas Charles.

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