So two weeks have nearly elapsed and less than half of the UK's mortgage lenders have passed on the cut in interest rates to their customers despite continued calls from the Council of Mortgage Lenders (CML) for the Bank of England to take action to help stimulate the housing market.
Should we be surprised at this? Probably not. It is not the first time the Bank has lowered rates only for lenders to appear to drag their heels over doing so themselves.
But given how vocal so many in the mortgage industry have been recently about the need to lower rates and the dangers of a stagnant housing market, shouldn’t lenders now be doing more themselves to stimulate the market by acting sooner rather than later on the decision of the Monetary Policy Committee?
Well not necessarily. It might be too early to criticise the banks and building societies for not passing on rate cuts as for the most part it will only become relevant to mortgage customers at the start of September.
If lenders hold off from passing on interest rate cuts to customers then what does this mean? Should we assume lenders are simply being greedy: knowing not lowering their rates for another month will increase the margins on their books of business. Or should we look at such an unwillingness to pass on the benefits of a quarter point cut in rates as a more sinister indication of real trouble given the number of larger lenders that have reported an increase in bad debt levels over the last couple of months?
Maybe neither, but what is clear is that competition between lenders for business and market share has never been tougher. And many lenders have already claimed their decision not to pass on the rate cut at all, or to only pass on a small cut in their own standard variable rate as in the case of Nationwide, is the result of offering extremely competitive deals during a period when the base rate stood at 4.75%.
Lenders are certainly under a lot of pressure at the moment and this month - although traditionally one of the quietest months in the industry calendar – will probably have done nothing to ease that pressure. Many industry chiefs may have even been looking forward to taking some time off from what has without doubt been a difficult market to operate in recently.
But when business resumes in September most lenders will be looking at the amount of business they have done for the year to date and many may be looking rather nervously at their sales targets for the year. Undoubtedly these will have been reduced in anticipation of a slower market in 2005 and in recognition that the previous two years saw record levels of growth. But some reports suggest many lenders have not lowered their sales targets by as much as many would have expected and several are bound to miss those targets completely.
What does this all mean for the housing market? Well we could be forgiven for expecting gloomy predictions for the future as depression takes hold and the nights get longer. Or we could see a renewed effort by all in the industry - refreshed from their two weeks in the sun - to keep the housing market moving along.
One thing lenders have to be very clear on is it unlikely the Bank of England will lower rates again before the end of the year as revealed this morning by the minutes of the MPC meeting 13 days ago. So hanging on until September or October before passing on a cut in rates to their customers is neither acceptable nor helpful to the market as a whole.
And, ahead of publication of the CML lending figures for July tomorrow, gazing into my crystal ball, I would like to make a prediction that gross lending figures will be largely unchanged, maybe showing an increase of one, or even two, percent and that lending will still be well below last years figures for the same month. If the lenders want to change this picture then they now have to do something about it.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Matthew West on 020 7484 9893 or email [email protected].IFAonline
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