Mortgage market 'completely detached' from Bank's base rate

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The mortgage market is "completely detached" from the Bank of England's interest rate, an industry expert has said.

Paul Holmes of mortgage broker Firstrung pointed out that the average standard rate from mortgage lenders is two per cent higher than the Bank's base rate.

"I don't see how so many market commentators can say: 'Rates will go down next year; that's better for us'," Mr Holmes said.

"The average standard variable rate, if you look at all the lenders, is 7.75 per cent. So it's over two per cent above the base rate.

"The lenders are completely detached - the Bank of England might lower rates tomorrow, but the lenders would say: 'That's fine, but we still need to make a profit'."

He even went so far as to say that the credit crunch had led to a dislocation between the Bank's base rate and what lenders lend at.

"It's completely different now," he said.

Interest rates currently stand at 5.75 per cent, with many commentators predicting that they will be lowered within the next two months.

Many mortgage lenders have tightened their lending criteria in the wake of the sub-prime mortgage crisis in the US, which saw many financial institutions take a hit when low-income mortgage borrowers defaulted on their payments.

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