UK's Building Societies Association, or BSA, urged the Bank of England Monday not to cut the base rate further on Thursday, when its monetary policy committee meets to review the policy.
Director General of the BSA, Adrian Coles said, "The cuts in interest rates have had a severe impact on savers. The reductions, from 5.75% prior to the run on Northern Rock in 2007 to 1.5% have seen incomes from savings drop by almost 75%, although the full impact of the base rate cuts has not actually been passed on to many savers."
Coles acknowledged that falling interest rates have benefited variable rate mortgage borrowers, but said that mortgage availability is now a greater concern to borrowers than costs.
He said, "The BSA's Property Tracker survey found that affording the monthly mortgage payments was considered a barrier to home purchase by 37% of respondents in December, down from 70% in June 2008 as interest rates fell. However, concerns over getting a large enough mortgage or getting a mortgage altogether increased from 49% to 56% over the same period."
Coles noted that building societies and their subsidiaries were responsible for 62% of net lending in the fourth quarter of 2008. At this juncture, the BSA said a further reduction in interest rates would make people even less likely to save and disrupt further the flow of funds into the mortgage market.
"We need to ensure that those with at least some capacity to supply funds for mortgage lending - personal savers - are encouraged to do just that, and that requires the MPC to refrain from making further cuts to the Bank Rate at least until the impact of recent reductions becomes clearer," Coles said.
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