Banks fail to pass on rate cuts

4th October 2010

The Bank of England has cut the base interest rate from 5% to 0.5% as part of the response to the 2008-2009 economic problems.

However, a 4.5% reduction has only resulted in a 2.5% reduction in average mortgage interest rates since mid 2008. According to the BBC News website, the average mortgage interest rate now stands at 3.75%.

Surprisingly the cost of unsecured credit has risen while the base rate has been slashed. During the same period the typical interest rate on an unsecured loan has increased by 2.5%.

A Bank of England report into this situation has suggested a number of possible reasons why, including the need for the banks to build up capital, a desire to increase profits to cover bad debts on old loans and the fact that banks cannot further cut savings rates because they are already so close to zero.

In short, the banks have used the base rate reduction to make more money; and as usual, the British public are footing the bill for banking shortfalls.

This money is of course being made mostly from those with the highest debt levels. Already facing financial challenges, the extra costs of borrowing have forced many people into insolvency via sequestration or Scottish trust deeds.

This money is of course being made mostly from those with the highest debt levels. Already facing financial challenges, the extra costs of borrowing have forced many people into insolvency via sequestration or Scottish trust deeds.

While the Bank of England tried to reduce the cost of borrowing so that we could all spend a little more to stimulate the economy, in reality the cost of borrowing has actually increased, leaving anyone with debts less able to spend and less able to repay their debts.

Anyone who is struggling to manage the increasing costs of servicing their debts is encouraged to take advice on the options available to them as soon as possible. A number of options are available to deal with unmanageable debt, which includes debt management plans, the debt arrangement scheme, as well as Scottish trust deeds. Even bankruptcy may be advisable in certain circumstances to deal with overwhelming debt. A good debt advisor will be able to provide information about the advantages and disadvantages of each of these options.

For a trustworthy and comprehensive resource of advice regarding the various debt management options such as Scottish trust deeds, please visit our trust deed advice forum .

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