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CML responds to Which? on borrowers paying standard variable rate (SVR)

Published: 22 June 2011

Responding to today's claim by Which? that 95% of lenders have failed to "pass on" cuts in base rate to customers on a standard variable rate (SVR), the CML is reminding borrowers that mortgage markets have changed fundamentally as a result of the financial crisis, reinforcing that base rate is no proxy for the cost to lenders of raising funding.

Since 2008, lenders have been operating in market conditions that have changed significantly, with a shortage of funds, new requirements to hold more capital and liquidity, and increased pressures to help borrowers in difficulty while mortgage arrears are expected to increase. Since base rate reached its historical low point in March 2009, lenders have been affected by:

  • New requirements to hold capital and liquidity, which have increased their operating costs.
  • Wholesale funding markets that have recovered only partially (and which remain closed to many lenders), reinforcing the dependence of lenders on retail deposits.
  • Competitive pressures in the market for retail deposits, as savers seek better returns in response to higher inflation.
  • Pressures to extend greater forbearance to borrowers in difficulty at a time when mortgage arrears are expected to rise.
  • Pressures to make more mortgage lending available to new borrowers at a time when an increasing number of existing borrowers are reverting to lenders' standard variable rates. 

Commenting on market conditions for lenders, CML director general Michael Coogan said:

"Lending rates are fundamentally driven by the cost of funds, not the base rate, although the two were more closely correlated before 2008. But this apparent historical relationship has been blown apart by the move to an unprecedented low base rate since March 2009. 

"Since the onset of the financial crisis, firms have been operating in lending and funding markets that have changed dramatically, and we have been reinforcing the message that base rate is not a proxy for the funding costs for lenders.

"For borrowers anticipating difficulty, however, the message remains unchanged. They should speak to their lender as soon as possible if they are struggling to meet their repayments, and lenders are committed to helping them wherever they can do so."

Notes to editors

1. The Council of Mortgage Lenders' members are banks, building societies and other lenders who together undertake around 94% of all residential mortgage lending in the UK. There are 11.3 million mortgages in the UK, with loans worth over £1.2 trillion.

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