No rate-relief for mortgages

Mortgage-lenders were unlikely to speed up passing on interest rate cuts to borrowers, an economist warned today.

Attempts by the Bank of England to ease problems for mortgage-holders struggling with high-interest repayments have been almost in vain as lenders have been slow in adjusting their rate in line with recent cuts – hitting the 1.4 million people expected to remortgage this year as fixed rate deals expire.

Now Paul Dales, a UK economist with Capital Economics, said the lack of mortgage-lenders passing on cuts – which have fallen to 5.25 per cent - to customers was a "continuing problem".

He said: "The money market rates have actually risen since the Bank cut [its] base rate in February, whereas normally you would expect to see them fall sharply.

"There does seem to be a kind of stickiness in that lever of bringing monetary policy to the markets and then the economy."

He said lower interest rates had had a "marked impact" on the pound which would help the economy. This meant, while monetary policy was not entirely powerless, it was not as effective as it might have been before.

Mr Dales added: "That does support the argument that interest rates might have to go quite far below what people think is a neutral level of around 4.75 to five per cent."

Capital Economics has predicted rates will be slashed by the Bank of England to around four per cent, although this will be over a longer time frame.

"We think that they'll only continue to cut rates slowly," he added.