Anger as lenders drag their feet on passing cut to homeowners

Published 09th Jan 2009

Many of Britain's leading banks looked on a collision course with the government last night when they said merely that they were keeping their main lending rates "under review" after the Bank of England cut the base rate to an all-time low of 1.5%.

While the Nationwide, HSBC and Lloyds-TSB pledged to match Threadneedle Street's half-point cut - which took interest rates to their lowest since the Bank was established in 1694 - Halifax, the country's largest mortgage lender, said it would pass the full cut on to its tracker customers but would cut its standard variable rate by only a quarter of a point.

Other top banks including Barclays and Royal Bank of Scotland/Natwest, the latter now 58% owned by the taxpayer, declined to follow suit for now.

As the Bank's monetary policy committee has cut rates from 5% in October in several stages, banks have tried to widen their lending margins to improve their battered balance sheets. This has angered ministers, who want homeowners to benefit from cheaper base rates and spend more to boost the economy.

The Chief Secretary to the Treasury, Yvette Cooper, said yesterday: "Clearly people are affected differently, depending on the kind of mortgage that they've got. But the point here is that the banks themselves are benefiting from the cut in the Bank of England base rate, and we want to see those benefits passed on.

"There are different ways for the banks to do that, including through passing on mortgage rate reductions, but also through looking at what more they could do to benefit savers, or looking at what more they can do to increase the volume of lending."

Many people who took out tracker mortgages before the recent spate of rate cuts will benefit as the rates charged on them are tied to the Bank rate. But new borrowers or those remortgaging have found much less competitive rates are on offer, while some borrowers are facing "collars" on their mortgages - a downward limit on how far the rate can fall.

HSBC upped its tracker rate for new borrowers on Wednesday, by 0.31%, apparently to pre-empt the predicted base rate cut from the Bank of England.

Yorkshire building society has a collar of 3% on its tracker mortgages, but admitted yesterday that some borrowers may benefit from this month's cut after all. The society said details of the collar had been left out of some customers' key facts illustrations and it was examining terms and conditions on those loans to see if the collar could be imposed. Where no collar is mentioned, borrowers will see their rates fall in line with yesterday's rate cut, it added.

Halifax was forced last month, following the intervention of the Financial Services Authority, to drop a clause in its mortgage contracts allowing it to impose a floor on interest rates. Nationwide had already warned 200,000 of its tracker rate mortgage customers that they would not see further falls in interest rates below 2%.

Ray Boulger, mortgage expert at adviser John Charcol, said: "With most collars on tracker mortgages now operating I estimate that 275,000-300,000 out of the approximately 4 million borrowers with a tracker mortgage will not benefit from today's Bank rate cut, or indeed any further cuts." Tracker rates account for about 40% of all mortgages.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, was gloomy about the rate cut helping the housing market or wider economy. "The risk is that lenders are set to become even more restrictive over the coming months in the face of the worsening economic climate," he said. "With many first-time buyers unable to find [finance] and existing owner-occupiers who need to move similarly blighted, the time has come for the government to take action to restore an orderly property market."

Source: ' Guardian '

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