Rate cut will hit home loan funds say building societies

building societies today warned the Bank of England that another cut in interest rates this week will do more harm than good.

They said the expected 0.5 per cent reduction on Thursday would deter savers, reducing the supply of funds available for new mortgage lending.

Building societies usually account for about a fifth of mortgage lending and a fifth of savings accounts.

However, with the banking industry in crisis the building societies' share of net lending ballooned to 62 per cent in the fourth quarter of last year.

Adrian Coles, director general of the Building Societies Association, warned that without a flow of savings the lending for home buying would be in jeopardy.

He said: "Mortgage availability, rather than the cost of mortgages, has become a more pressing issue. This suggests that what is important to potential borrowers is maintaining the flow of mortgage funds to the market rather than reducing interest rates further."