Quantcast
Menu

News

Lower base rate could force small mutuals into trouble – Nationwide

Mortgage Solutions
Written By:
Mortgage Solutions
Posted:
Updated:
27/02/2024

Robert Gardner, chief economist at Nationwide, highlighted comments by the BoE that any reduction in the base rate could have repercussions for the mortgage sector, particularly for smaller building societies

Speaking to an audience of brokers at the Pink Network conference in Oxfordshire, Gardner (pictured) said smaller lenders could run into difficulties were the Bank to lower the base rate from its historic low of 0.5%.

“A base rate cut would put significant pressure on lenders and their margins. In all probability it will reduce the availability of credit to the wider economy. The Bank of England has said it recognises this as a risk, which is probably the main thing holding them back from cutting base rate. “Not only do they recognise it will reduce the availability of credit, it could also drive some smaller building societies who are particularly vulnerable into trouble and that could make competition in the market even worse.”
Gardner said that Nationwide expected the base rate to remain at 0.5% until 2015, and said that even ignoring the negatives, any cut would make little difference to the lending market.
“We believe a rate cut at this point would be counterproductive. Even if you ignore the negatives, the positives aren’t that great. Even if they cut the base rate to 0% and that was passed on to everyone that would reflect around 0.5% of growth.”
“But only 35% of mortgages are trackers and only half of corporate debt is variable rates so the real impact would be around 0.1% or 0.2% in growth for the economy. “We don’t think there’s any reason to expect a cut in the base rate and that’s what policy makers also argue. We expect the bank rate to rise in early 2015 and the general view seems to be moving to around that date as well.”


Tags:
Share: