Banks are coming under increasing pressure to reduce mortgage rates.
Gordon Brown today demanded that banks pass on tomorrow's expected interest rate cut to their customers. The prime minister said mortgage borrowers expect to see the benefits of lower interest rates, especially given the large amount of taxpayers' money that is being used to prop up the banks.
"Interest rates have been cut from 5.75 percent to 4.5 percent and the Bank has said there is more scope for interest rates cuts," he remarked during prime minister's question time. "We want the banks and building societies to pass on the interest rate cuts to their mortgage holders."
Mr Brown's demands followed a similar call from business secretary Peter Mandelson, who said the government had "strong expectations" that banks should respond appropriately to the loosening of monetary policy. He said they are likely to face some difficult questions from their customers if they refuse to do so.
But the Council of Mortgage Lenders has insisted it does not make commercial sense to force banks into passing on cuts in the base rate, since their own costs are determined by inter bank lending rates.
It said that prior to the credit crunch such requests would have been reasonable, but ongoing problems in the money markets have altered the landscape significantly.
