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Clare Francis: I'm with Kevin Mountford this morning who is head of banking and mortgages at moneysupermarket.com to talk about the shock interest rate decision that we had earlier this month.
Q1: Kevin, obviously we've seen bank rate now fall by 1.5% to 3%, which was a complete surprise because no-body really expected it. Do you think this changes things, with regards to sentiment in the savings and mortgage markets?
Kevin Mountford: Yes, very much so. I mean this follows the recent change of half a percent, and even that was a little extreme for the MPC (Monetary Policy Committee) that has a tendency to move in quarter-percentage points.
It was quite interesting because there was commentators, certainly from industry - and I actually read something in the national press this week where an ex-member of the MPC said it needs to be 1.5% - but within the industry we've all been anticipating a change, but we did actually think half percent up to maybe one percent was about as wide as that spread was going to be.
So I remember when the call came through yesterday saying 1.5% I'd thought I'd misheard it, so certainly caught most people by surprise and I think the reaction from some of the banks / building societies since has also caught them a little bit unexpectedly as well.
Q2: Absolutely, because what have we seen? We've obviously seen quite a few lenders pull their 'tracker' deals this week, but equally the other thing that's disappearing quickly are fixed rate savings accounts, because obviously the rates have been significantly higher than the bank rate now is. What do you thinks going to happen over the next few days?
KM: We'll you've got, for a period of time now, we've said that savings and mortgages have been completely decoupled from bank base rate. So you had artificially high savings rates because of the needs for banks, building societies to get retail investments in; and then you've got the mortgage providers saying 'well, bank base rate doesn't matter because its all about LIBOR' - so they were both I guess higher than you would have expected.
However, since the half percent cut and certainly since the latest one, it seems like the savings rates are falling back in line a lot quicker, so that's widening the difference between savings and mortgages. That means one thing for the banks, and that's more profit - and clearly they've been very opportunistic now to use the latest change / decrease of 1.5% to their advantage, and I'm not sure that short-term it's actually going to be to the advantage of consumers.
Q3: I was going to say that, because obviously it's more profit for the bank which means the consumer's worse off because they're hit from both sides aren't they. What do you think with regards to mortgage rates and savings? Obviously the banks are coming under increasing pressure from everyone really - from Government, from consumer bodies, from borrowers themselves - to pass on this rate cut in full, but I was hearing from a few analysts over the last sort of 24 hours saying that we might not actually see that, and a 1.5% cut is unlikely from a lot of lenders. We might see their standard variable rates (SVR) go by 1% as a maximum. They're not playing fair really, are they?
KM: Well it's difficult - they're businesses at the end of the day, they've got shareholders, albeit now that the man on the street now with some of them you could say is a shareholder, or at least has a vested interest as a tax-payer - but these are businesses at the end of the day.
Every day that they delay, and let's assume that they will give in to the pressures at some stage - to what extent, as you rightly say, we'll have to wait and see - but every day there's a delay the quicker they move the savings and the slower they move the mortgages goes back to adding money to their bottom line.
You mentioned the point about savings, in particular fixed rates, already we've seen a number of fixed rate savings products withdrawn from the market. The market leading one-year bond is ICICI - they've announced a 1% reduction in that bond.
CF: From...
KM: From 7.1% to 6.1%, so it's imperative now that if people want to maximise the returns on their savings, and they can afford to put some money away, they look at some of these fixed term options.
CF: And quickly!
KM: They're disappearing by the hour.
Q4: So is that the message then for consumers - be alert, be on your guard and move your savings if you're not getting a good rate - and if you're free to remortgage and your lender hasn't passed on the rate cut, see what you can do?
KM: Yes. I guess it's difficult really to give some blanket advice because you could have a situation for instance now where somebody's on a tracker mortgage, and that effectively does reflect the change, even if there's a collar on that and a limit to which it goes. But say that drops to 3% and yet the savings rates still at 4%, then you're getting a positive return - so for those individuals they might be better off.
I think in the overall context of things, most people are going to suffer if they got borrowing and savings at the same time.
Q5: Are you worried about the future, because some of the reaction has been 'is this panic by the Bank of England', because obviously no-one was expecting such a deep cut? As far as the looming recession and things like that do you think that consumers need to be nervous?
KM: Well, there's been a lot of talk and rhetoric from the Government, certainly from the Bank of England, is that we're approaching a recession and now finally we've got the head of the sands and they've acknowledged something everyone else knew - that regardless of the technicalities we are in a recession - and I think the latest figures that they were seeing on the economy meant they had to take some decisive action.
I think it's just a case of this is so extreme, compared to what we normally see from the MPC, and I guess as such it does have a hint of panic around it, but it's only over the next few weeks how it pans out in terms of the consumer that's really going to understand what, if any, positive impact it actually has.
CF: So the message is, I guess, just be vigilant and keep an eye out.
KM: Very much so - you're going to get some banks / building societies that are going to react on both fronts very, very quickly, but at the end of the day you'll still get some deals better than others, and you've just got to make sure that as you say, you keep vigilant.
CF: Thanks Kevin.
KM: Thank you.
