Homeowners' hopes for lower mortgage payments have been dealt a harsh blow. By Paul Slade
MILLIONS OF borrowers hoping that the 0.25 per cent cut in base rates by the Bank of England would be reflected in a similar reduction on their home loans faced disappointment this week, as the UK's biggest lenders refused to play ball.

Although Halifax, Abbey National, Cheltenham & Gloucester, NatWest and Northern Rock announced that they were trimming their variable rates by between 0.1 and 0.14 per cent - less than the base-rate cut the previous week - they warned that in future borrowers would have to take a back seat to lenders.

Paul Duffin, general manager for mortgages and savings at the Halifax, says: "Our view is that there might be one more cut in base rate to go - down to, say, 5 per cent. As you get down to the bottom, it's a question of striking a balance between the demands of both borrowers and savers. We're down to rates now that we haven't seen for a long, long time."

Lorna Waddell, an Abbey National spokeswoman, adds: "We haven't said categorically whether we will or will not lower rates any further. But our savers outnumber our borrowers by seven to one, and their needs will be at the top of our mind from now on."

At the C&G's, a spokeswoman says: "Savers are getting concerned about the continued cuts. Borrowers have benefited, and they may well now see savers being looked after more than in the past. We would certainly concur with the Halifax and Abbey National."

Other big lenders, including Bradford & Bingley, have yet to decide whether to pass on any or all of the base-rate cut to their borrowers. Nationwide said this week that it will not drop its rate.

However, Rowan Gormley, chief executive at Virgin Direct, which reduced its variable rate by the full 0.25 per cent, argues that the big lenders' argument is flawed: "A taxpayer would need over pounds 6,000 in a deposit account to lose out by just pounds 1 a month as a result of a 0.25 per cent cut in rates.

"Yet if they are paying interest on a mortgage of pounds 50,000 at the same time, they stand to lose out on a potential reduction of pounds 10.41 if the rate cut is not passed on."

Some smaller lenders, such as Skipton Building Society, are also taking a different line - at least with a few specialist products.

Skipton has pledged that its Base Rate Tracker Mortgage will continue to fall as long as cuts in base rates continue. The Tracker loan, relaunched last week, now guarantees a rate of no more than 1.25 per cent above base rate, currently standing at 5.25 per cent, with a further 1.25 per cent discount for the first 12 months.

Mark Smitheringale, the society's head of communications, says: "Every reduction in the bank base rate will be followed by ourselves on that particular product".

But Paul Duffin at the Halifax warns that borrowers in Skipton's Tracker will suffer if base rates should climb back to anything like their late- Eighties peak of over 15 per cent. They may benefit when base rates are low, he suggests, but should expect no relief from the pain when base rates climb again.

He adds: "When base rates have gone very high before, mortgages didn't follow them all the way up. We protected borrowers against that."

Skipton has yet to announce what will happen to its own standard variable rate after the latest base-rate cut, but Mr Smitheringale says it is "almost certain" that its current variable of 6.89 per cent will be reduced.

"Savers are being penalised. I think there comes a time when we have to try and maintain savers' rates to try and give people some kind of reasonable return from investing in building societies," he says.

Despite fears of falling rates for savers, the C&G's spokeswoman says: "We haven't moved any of our savings rates yet. We haven't decided whether we're going to make any reductions on them at all yet or whether we're just going to leave them be."

Mr Duffin says: "There will be a reduction for [Halifax] savers, but because we've only had a small cut on the borrowers' side, at least that allows us to moderate it. We'll be announcing that before the end of the month."