Lenders fail to cut mortgage rate

23 January 2009 11:52am

Nearly two thirds of lenders have failed to announce cuts to their variable rate mortgage, two weeks after interest rates were slashed, figures showed.

So far only 32 out of the 89 lenders which have a standard variable rate (SVR) mortgage have announced plans to pass on at least some of the reduction in the Bank of England base rate to their customers.

Among these, 17 have said they will cut their rates by at least the full 0.5%, while 15 are passing on between 0.15% and 0.36% of the reduction.

But 57 lenders, including major players such as Abbey, Barclays' lending arm the Woolwich, Alliance & Leicester and nationalised bank Bradford & Bingley, have so far failed to say whether they will be cutting their SVRs.

Louise Cuming, head of mortgages at moneysupermarket.com, said: "We now expect very few further announcements from lenders. If there is another cut next month, they will just pass on a proportion of both, so borrowers will miss out on at least one reduction."

"Banks are really hurting in terms of profitability. They are between a rock and a hard place and the Government's objectives just don't add up."

She said some of the new mortgage deals being launched following the latest cut could be storing up problems for the future.

She said most new tracker deals now offered a margin of around 2% above base rate, and while this gave a low pay rate of 3.5% when the base rate was 1.5%, if it rose to 5% again, people would be facing a rate of 7%, around the same level that SVRs were at last year when commentators were worried about payment shock.

Some lenders have argued that they cannot pass on the full reduction in the Bank of England base rate to their new and existing mortgage customers because they need to protect their savers, who have seen the returns they receive on their money dive since October.

Banks and building societies have become increasingly reliant on using money from their savers to fund their mortgage lending due to the current problems in the wholesale money markets.

© The Press Association