Level of base interest rate fails to be reflected in loans

For more than a year the base interest rate in the UK has been at its all time low of just 0.5 percent, which is the lowest it has ever been in the history of the Bank of England, which spans over three centuries. However, despite this rock bottom base rate there are concerns over the level of interest still being charged on borrowing.

A recent report has highlighted how the low base interest rate is not being reflected in borrowing interest rates, with one industry expert stating that lenders are reluctant to drop borrowing interest rates even though the base rate is so low. Many have expressed concern over the ever widening gap between the base rate and borrowing rates, with lenders thought to be raking in the money as a result of their reluctance to reduce their borrowing rates.

Darren Cook, a financial industry expert, said that there seemed to be an increasing disassociation between the base rate and the interest rates that borrowers ended up paying. Borrowing rates on many financial products have soared over the past three years, but some have said that this comes as no surprise given the increased risks in the current market.

It is thought that the borrowing rates on credit cards, mortgages, and personal loans fail to reflect the low base rate, and certainly in the case of personal loans and credit card rates have been increased over the past few years.

Mr Cook stated: “We are seeing, especially in the mortgage market, credit cards and loans, that there is not a direct association between the Bank of England rate and what customers ultimately pay.”