Darling warns that it could take time for interest rate cuts to be passed on

Over the past four months the Bank of England has cut the base rate three times by 0.25% each time, taking the base rate from 5.75% to 5%. However, whilst this appeared to be welcome news for homeowners many found that their secured loan lenders were failing to pass on all or even any of the base rate cut, which meant that they were essentially no better off than when the interest rates were higher. This, on top of many bill and living cost rises, left many households continuing to face financial strain.

The government has been urging banks and lenders to pass on the base rate cuts and do their bit to help struggling homeowners and the economy as a whole. Government officials have said that given the fact that the Bank of England has ploughed billions into the money markets recently, and has come up with a plan that will allow mortgage lenders to exchange high quality mortgage assets for government bonds, banks needed to make sure that they did their bit.

However, Chancellor of the Exchequer, Alistair Darling, has said that it could take more time than anticipated for the rate cuts to be passed on. He said: ‘It will take time because banks are having to build up their capital positions. There is no quick fix.’ Whilst the government has been putting pressure on banks to pass on the rate cuts one recent report even suggested that the governor of the Bank of England appeared to be defending banks that had not passed on these cuts.

He said that when interest rates were going up before 2006 the increased rates were not always passed on. He added: ‘What has been happening in the last six months is that now we are cutting interest rates some of the reductions in Bank rate have also not been fully passed through to mortgage rates.’