Lenders fail to pass on rate cut
Updated on 30 April 2008
Four out of 10 mortgage lenders have so far failed to pass on last month's interest rate cut to their borrowers, figures have showed.
Around 40 of the UK's 104 mortgage brands have not yet announced whether they will be reducing their standard variable rate (SVR) in line with the fall in the official cost of borrowing.
The majority of lenders who have not yet made an announcement are small banks and building societies.
But a number of bigger players have also failed to pass on the reduction, including internet bank Egg, while Intelligent Finance has reduced its main SVR but not its offset one.
Lenders typically reduce their SVR for existing borrowers by the first day of the month after a base-rate reduction at the latest, and the fact that a number of groups have so far failed to announce a change, suggests they are now unlikely to do so.
Their failure to pass on the cut is likely to anger the Government, with the Prime Minister recently calling on lenders to reduce the interest they charged customers in line with cuts to the official cost of borrowing.
A handful of lenders who have cut their rates have failed to pass on the full 0.25% reduction, including the recently nationalised bank Northern Rock, which reduced its SVR by just 0.1%.
The mortgage market is currently suffering as a result of the credit crunch, with the lack of liquidity in wholesale money markets restricting the amount banks can lend and increasing their own borrowing costs. As a result, lenders are raising their rates, tightening their lending criteria and pulling deals that are attracting too much business.
Michael Coogan, director general of the Council of Mortgage Lenders, said the mortgage market should benefit indirectly from the Bank of England's £50 billion liquidity scheme over time.
He said: "If it is used widely, as I expect it to be, and extends to over £50 billion in asset swaps by banks and building societies, we think that some of that money will be recycled responsibly into the mortgage market. However, it was not the Bank's main intention or aim. This possible outcome of recycled funds is also uncertain in terms of scale and timing."
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