BSA: No more cuts to the base rate

5 February 2009

The Building Societies Association (BSA) has called for the Bank of England to hold off on cutting the base rate any further, due to the impact this would have on people who rely on interest from their bank accounts.

“The cuts in interest rates have had a severe impact on savers,” said Adrian Coles, Director General of the BSA. “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.”

He pointed out that pensioners would be hit particularly hard, as many of them depend on the interest income from their savings.

Furthermore, the BSA’s Property Tracker survey had revealed that, in December, 37% of respondents considered the affordability of monthly mortgage payments to be a barrier to home purchase (a reduction from 70% in June), while the percentage concerned about being able to get a large enough mortgage – or get a mortgage at all – had grown from 49% to 56% over that period.

“So mortgage availability, rather than the cost of mortgages, has become a more pressing issue over the last few months.”

Given that individuals’ savings are a source of funds for mortgage lending, he concluded, it’s vital they are encouraged to save – “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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Tags: northern rock, base rate, base rate cut, cut to base rate, bsa, bank account

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