Lloyds TSB to pass on full rate cut
Updated on 06 November 2008
Lloyds TSB announced it was passing on the full 1.5% cut in interest rates to its variable rate mortgage customers.
The group, which also lends under the Cheltenham & Gloucester brand, is reducing its standard variable mortgage rate (SVR) from 6.5% to 5% from November 1.
But other lenders were slower to respond, with all of the major groups, including the UK's biggest lender Halifax, saying their rates were under review.
Lloyds TSB pledges that its standard variable rate (SVR) will never be more than 2% above the Bank of England base rate, leaving it little option but to cut it. But many other lenders are expected not to pass on the full reduction to their SVR customers, particularly given the size of the cut.
Only 57 of the 96 lenders that have an SVR have passed on October's reduction, with many failing to pass on all of the 0.5%.
Most of the 4.7 million households which have a tracker or discount mortgage should automatically benefit from the reduction. But new borrowers taking out one of the deals are unlikely to see their rates fall in line with the cut.
Lloyds TSB and nationalised bank Northern Rock pulled their entire tracker ranges on Wednesday to reprice them. Abbey and Halifax also increased rates on some of their tracker products by up to 0.5% last week, effectively wiping out a third of the cut, while Nationwide hiked the cost of some of its deals by up to 0.4%
The problem for lenders is that wholesale funding costs remain high in relation to the base rate. The key inter-bank lending rate, three-month Libor, fell to 5.56%, but it remains a massive 2.56% above the new base rate, and well up on its typical pre-credit crunch range of between 0.15% and 0.2% higher.
A Council of Mortgage Lenders spokeswoman said: "The real cost of funds to lenders is determined not by the Bank base rate, but by their own cost of borrowing.
"So it does not make commercial sense to insist or expect that lenders automatically 'pass on' cuts in Bank rate to borrowers, other than those with Bank rate tracker mortgages, unless and until the cut flows through to an equivalent reduction in their own funding costs."
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