Wont Lowering Interest Rates Just Hurt The Public But Help Banks ?

Question

Lowering the Bank of England base rates, will have no effect on the price of mortgages, because the mortgage companies will not pass the benefits on to their customers.

Banks will use the percentage cut to refill their vaults, which have been emptied by the credit crunch.

An interest rate cut ultimately costs the public, and could cause a rise in the inflation rate.

Should the UK's fiscal policy use other measures to increase the flow of money in the financial system ?

Answer 1

Hi,your right it will line the pockets of the banks.They have put there lending rates up so cannot see them passing on a cut.

I am starting to wonder if this is a ploy to bring the government down.I do not like what labour have done but the

economy has been stable.They cannot be to blame for rising house prices has a house is only worth what your prepared to pay for it.They say theres a shortage in houses.In the North East the houses were snapped up at bargain prices from people outside the area.They bought to let personally I believe they should have been stopped.I hope the inflation does not rise Has the cost of living is already high.

Answer 2

It depends on what type of mortgage you have.

I have a tracker whcih means my mortgage follows the bank of England base rate so I will be better off.

I agree though for many people who do not have this type of mortgage they will probably not see a difference in their mortgage rates. In fact at least 2 banks I know of have put mortgage rates up in the past week.

Answer 3

The banks are in a win win situation, where as the borrower is in a lose lose situation.

The bank will.. and has already increased the rate for borrowing...meaning you'll pay more interest for what you owe but this will go to the bank's coffer's and not passed onto the customer as when interest rates rise...were paying more to the bank in return.

Oh to be a happy banker!

The only thing is...they'll ultimately feel the pinch when houses are soon repossessed as people can't afford to pay back what they owe as interest is set too high and there is negative equity in their house so they'll be selling at a loss.

The same thing happened in the early 90's..when I bought my house.

It was a repossession and I got a great bargain on it as NO ONE was buying..and the bank could hardly give houses away.

It will hit them in the end so they really should pass on some of their huge profits to the borrowers

Answer 4

Here is the rub.  The credit crunch was not caued by high interest rates. So lower them will have no effect.

As for all these people coming off fixed rate and not being able to afford the new repayments that is because their mortgages are pegged to 3m libor.  Which is fast approaching 6% and increasing.

Inflation is also being primarly driven by the cost of fuel, petrol, utilities, food.  The BoE has no effect on these.