Lenders' interest rate plea

Published:

04 December 2007

Topic:

News,Money,Mortgages

Mortgage lenders want the Bank of England to cut interest rates this week.

They say the cut in rates is needed to help them avert a home loans funding crisis.

A report by the Council of Mortgage Lenders (CML) says its members' ability to borrow in the money markets has been affected by the current credit squeeze.

Unless lenders can borrow at decent rates they either have to turn off the mortgage tap or charge much more for their loans.

The Bank's Monetary Policy Committee (MPC) meets this Thursday to decide whether to cut the base rate from its current 5.75% level.

Many commentators believe a reduction before Christmas is unlikely, despite growing evidence that the housing market is cooling and consumers are becoming more jittery.

Nationwide Building Society's monthly consumer survey, released yesterday, showed the biggest-ever monthly fall in confidence in November. Continuing uncertainty about the credit crunch, petrol breaching £1 per litre and higher staple food prices all seem to be affecting sentiment.

Meanwhile, the market's interest rate on one-month sterling funds traded in London (Libor) jumped to a nine-year high of 6.71% from around 6.1% at close of business last week.

But the MPC will look at a number of other economic indicators, including ones suggesting industry showed strong output growth and rising inflationary pressure last month.

Yesterday's purchasing managers' index - an important measure of future production - from the Chartered Institute of Purchasing and the business research company NTL showed a pick-up from 52.8 in October to 54.4 last month. Readings above 50 indicate manufacturing is expanding.

BoE Governor Mervyn King has already said he will make extra funds available to the banking system between now and the end of the year. Two lenders - Bradford & Bingley and the Alliance & Leicester - have managed to strike deals with other banks to raise billions of pounds in extra funds.

However, the CML warns that without lower interest rates, confidence in the money markets will not return. It says: "Firms have various other options, including the ability to influence the volumes of new lending business they write in line with their funding pipeline. But, the overall impact is to limit the availability of mortgage credit and to raise its cost for prospective borrowers."

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