Lenders slow to pass on rate cut
Updated on 04 December 2008
Mortgage lenders were slow to respond to the 1% interest rate cut with just four groups saying they would be reducing rates for their borrowers.
HSBC, Lloyds TSB, Barclays' lending arm the Woolwich and Bristol & West all said they would be reducing their standard variable rate (SVR) by at least the full 1%, while other lenders continued to keep their rates under review.
But there was good news for more than half a million Halifax tracker customers when the group announced that it would be passing on all interest rate cuts to them in full. Tracker mortgages automatically move up and down in line with the Bank of England base rate, but a clause in the Halifax deal gave it the option not to pass on all or any reductions once the base rate reached 3%.
The move follows speculation that City watchdog the Financial Services Authority could force the group to pass on the cut as borrowers had not been made aware of the clause when they took out their mortgage. The FSA warned earlier in the week that such clauses would be unenforceable if they were not included in the Key Facts Illustration which is given to borrowers when they arrange a loan.
Lloyds TSB, which also lends under the Cheltenham & Gloucester brand, was the first lender to announce a reduction, saying it would pass on the full cut ahead of news of the Monetary Policy Committee's decision.
Nationwide later followed the lead of its rival Halifax and said it would pass on the interest rate cut to its tracker mortgage customers in full.
The move reduces the group's SVR to 4%, although as it pledges that the rate will never be more than 2% above the base rate it had little choice HSBC and its lending subsidiary first direct, and Bristol & West and Bank of Ireland, which are part of the same group, were also quick to announce the reduction.
They were joined later by the Woolwich, which is reducing its SVR by 1.15%, after failing to pass on any of November's cut to borrowers. But despite the early announcements, the majority of lenders are not expected to pass on the reduction in full to their SVR customers.
Three-quarters of groups with an SVR failed to cut their rates by the full 1.5% following last month's cut, with a handful of lenders not reducing their SVR at all.
While the rate cut is likely to be good news for some borrowers, it is bad news for savers, particularly retired people who rely on deposit returns for their income. Adrian Coles, director general of the Building Societies' Association, said: "Building societies which pass on both this base rate reduction and the last could halve the interest which they pay to their investors in a very short period of time."
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