Major banks yet to pass on interest rate cut to borrowers

Published 22nd Oct 2008

Three out of four banks have failed to pass on this month’s interest rate cut, dashing hopes that borrowers would benefit from cheaper mortgage deals.

Britain’s biggest bank HSBC is one of a number of banks and building societies yet to reduce their standard variable rates following the Bank of England’s 0.5 per cent base rate cut a fortnight ago.

And those high street mortgage giants that have cut their rates have not passed on the full 0.5 per cent, according to research from information firm Moneyfacts.

Lenders are standing firm in their refusal to pass on the cut, despite further falls in the inter-bank lending rate.

Today's money market figures showed that the key three-month London Interbank Lending Rate (Libor) - used in pricing mortgages - has fallen back for the seventh straight day.

The latest figures from the British Bankers' Association showed that the three-month Libor now sits at 6.09 per cent, down again after yesterday's drop to 6.12 per cent.

Alliance & Leicester became one of the last of the big mortgage providers to announce it was reducing its SVR, although only by 0.25 per cent as it said wholesale money market costs remain stubbornly high.

A&L said the Libor had not yet fallen far enough or quick enough.

‘Libor has started moving in the right direction, but it needs to go down further and it's too early to start having an impact on our rates,’ said an A&L spokeswoman.

Some lenders are even increasing the rates on the tracker mortgages to new customers, with Lloyds TSB and Barclays' lender Woolwich last week upping the interest charged to limit new business in the face of high wholesale funding costs.

The Government's dramatic bank rescue efforts and the shock cut in interest rates have begun to help banks regain confidence to start lending to one another.

However, Libor still remains well above the 4.5 per cent Bank of England base rate in spite of the recent easing back.

Before the credit crunch, three-month lending rates stood around 10 to 15 basis points above base rate, while overnight rates should be virtually the same as official rates.

Today's figures show that overnight lending figures have fallen to 4.75 per cent from 4.77 per cent yesterday, although it is more volatile and had seen sharp declines last week, falling as low as 4.69 per cent at one stage.

Six-month interbank lending rates also eased today, down from 6.23 per cent to 6.2 per cent.

Governments and central banks around the world have been taking coordinated actions to help return confidence in the interbank markets, making funds available to banks and boosting their balance sheets.

The Bank of England last week unveiled a wide-ranging overhaul of its money market operations to allow banks more access to funds in stressed market conditions.

The Government is also pumping £37billion into three major banks in return for equity stakes and guaranteeing around £250billion in wholesale lending, while it is also extending the special liquidity scheme by £100billion.

Experts said that alongside these measures, interbank lending rates are also reducing in expectation of more cuts in the official base rate as the outlook for the economy worsens.

Figures due out on Friday are expected to show the first quarter of negative UK economic growth since 1992 and policyholders are forecast to slash rates again next month to help the ailing economy.

Source: ' dailymail '

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