Pendulum could swing to savers

Last week's base rate cut could be the last one this year that is passed on fully to mortgage borrowers, industry experts say.

Lenders responded almost immediately last Thursday to cut their rates when the base rate fell from 5.5 to 5.25 per cent. A borrower with a £100,000 variable-rate loan will see monthly payments fall by about £20 from June with most lenders.

But John Wriglesworth of the Wriglesworth Consultancy believes lenders decided to follow the base rate down this time because of the political outcry that might greet a less generous move. One of Labour's five electoral pledges was to keep mortgages 'as low as possible'.

Johannes Kennard of London & Country Mortgages takes a similar view. He believes banks and building societies may respond to another base rate cut by putting savers, rather than borrowers, first: 'If the rate goes down again, that would be the crunch time. Smaller societies may not be able to offer the full 0.25 per cent.'

He adds: 'It is a simple choice - upset borrowers or upset savers. This time it has been "sorry savers, you are the weakest link, go down". But if there is another base rate cut, there will be more temptation for the Halifax [the largest lender] to say enough is enough.'

Economists think another 0.25 per cent cut could happen this summer, with rates rising slightly over the next 12 months. But Labour is emphasising its aim of maintaining a low-inflation environment, and it is difficult for the experts to imagine inflation or base rates rising substantially in the medium term.

Broker London & Country is recommending fixed rates, such as a five-year 5.49 per cent deal from the Portman, as well as discount deals, which are now typically offering 1 to 2 per cent off the standard variable rate for one, two or even more years. The Halifax standard variable rate will be pegged at 7 per cent from 1 June.

Savers are unlikely to find out how much their rates will fall for a couple of weeks. Even then the bad news is likely to be disguised in a panoply of changes which will see different amounts shaved off different tiers of different products.

Top rates at the moment are around 6 per cent. People looking for good rates may be increasingly tempted to open a cash mini-Isa, where the income is tax-free. Top cash Isas are paying 6.25 to 6.5 per cent.