Borrowers unlikely to benefit fully from rate cut

Borrowers are unlikely to see the full benefit of this week's anticipated interest rate cut as banks focus on protecting their savings rates.

The Bank of England's Monetary Policy Committee (MPC) is widely expected to slash official interest rates by at least 0.5 per cent on Thursday, with some economists pencilling in a 1 per cent reduction.



But the majority of lenders are expected to pass on only half of any cut to their standard variable rate (SVR) mortgage customers, with some expected not to reduce their rates at all.



Three-quarters of lenders with an SVR passed on at least some of December's 1 per cent base rate reduction, but only 19 reduced their rate by the full 1 per cent, with some passing on just 0.15 per cent.



Michelle Slade, an analyst at Moneyfacts.co.uk, said: "With each base rate cut, the number of lenders passing the cut on in full to their SVR continues to dwindle.



"It is likely that some lenders have already cut rates as low as they are prepared to go."



Only three of the UK's top 10 lenders reduced their SVR by at least 1 per cent in response to the December cut, namely Lloyds TSB, Barclays' lending arm the Woolwich and HSBC, with Halifax making the smallest reduction of 0.25 per cent.



A number of lenders, including the Lloyds TSB group, Nationwide and Skipton Building Society, have pledged that their SVR will never be more than a set percentage above the base rate, leaving them with little choice but to pass on any reduction in full, but other lenders have more leeway.



Ray Boulger, senior technical manager at John Charcol, said: "The lower bank rate goes, the less of it is going to be passed on."



If the MPC reduces the official cost of borrowing by 0.5 per cent on Thursday, Mr Boulger expects lenders to reduce their SVR by around 0.25 per cent or nothing at all in some cases.



If the reduction to the base rate is 1 per cent, he thinks only around half of this will be passed on to borrowers.



Lenders can no longer use the excuse that they are failing to reduce their rates because wholesale funding costs are not falling in line with the base rate.



The key inter-bank lending rate, three month Libor, is currently 2.61 per cent, which while it is higher than its pre-credit crunch spread of being between 0.15 per cent and 0.2 per cent above the base rate, it has fallen by 1.18 per cent since the day before December's 1 per cent cut.



But banks and building societies are also increasingly having to balance the needs of their savers against those of their borrowers.



Lenders cannot afford to cut their savings rates too low, as they are heavily dependent on attracting depositors' money to fund their mortgage lending.



Nationwide announced last week that it would not be passing on any future interest rate cuts to the majority of its tracker mortgage customers, instead invoking a clause in the deals that enables it to stop reducing the loans in line with cuts to the base rate once it falls below a certain level.



It said the move, which will affect more than 250,000 customers, was to protect its savers from further aggressive rate cuts, and other lenders are expected to follow suit.



Tracker customers with other lenders will also fail to benefit from any reduction due to similar clauses, known as collars, already kicking in on the deals.



If the MPC does reduce the base rate by 0.5 per cent, it would shave around £40 a month off repayments on a £150,000 mortgage, while a 1 per cent cut would slash monthly repayments by £80 if lenders passed on the cut in full.



The reduction is even more dramatic for people with a £250,000 mortgage, with a 0.5 per cent cut potentially reducing repayments by around £68 a month, and a 1 per cent reduction cutting them by £134.

Arts and Entertainment
filmPoldark production team claims innocence of viewers' ab frenzy
Life and Style
Google marks the 81st anniversary of the Loch Ness Monster's most famous photograph
techIt's the 81st anniversary of THAT iconic photograph
News
Katie Hopkins makes a living out of courting controversy
people
Voices
All the major parties are under pressure from sceptical voters to spell out their tax and spending plans
voices
Arts and Entertainment
Kevin Spacey and artistic director Matthew Warchus at the Old Vic party to honour Spacey
theatreStar's successor at Old Vic theatre admits he's 'allergic to hype'
Life and Style
life + healthVirginia Ironside's dilemma, during Depression Awareness Week
Arts and Entertainment
The median income for professional writers is just £10,432, less than the minimum wage
booksSurvey reveals authors' earnings
News
i100
Life and Style
fashion
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: Pricing Analyst

    £30 - 35k (DOE): Guru Careers: We are seeking a Pricing Analyst with experienc...

    Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

    £24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

    Ashdown Group: Sales Team Leader - Wakefield, West Yorkshire

    £21000 - £24000 per annum: Ashdown Group: The Ashdown Group has been engaged b...

    Ashdown Group: Head of Client Services - City of London, Old Street

    £45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, int...

    Day In a Page

    Revealed: Why Mohammed Emwazi chose the 'safe option' of fighting for Isis, rather than following his friends to al-Shabaab in Somalia

    Why Mohammed Emwazi chose Isis

    His friends were betrayed and killed by al-Shabaab
    'The solution can never be to impassively watch on while desperate people drown'
An open letter to David Cameron: Building fortress Europe has had deadly results

    Open letter to David Cameron

    Building the walls of fortress Europe has had deadly results
    Tory candidates' tweets not as 'spontaneous' as they seem - you don't say!

    You don't say!

    Tory candidates' election tweets not as 'spontaneous' as they appear
    Mubi: Netflix for people who want to stop just watching trash

    So what is Mubi?

    Netflix for people who want to stop just watching trash all the time
    The impossible job: how to follow Kevin Spacey?

    The hardest job in theatre?

    How to follow Kevin Spacey
    Armenian genocide: To continue to deny the truth of this mass human cruelty is close to a criminal lie

    Armenian genocide and the 'good Turks'

    To continue to deny the truth of this mass human cruelty is close to a criminal lie
    Lou Reed: The truth about the singer's upbringing beyond the biographers' and memoirists' myths

    'Lou needed care, but what he got was ECT'

    The truth about the singer's upbringing beyond
    Migrant boat disaster: This human tragedy has been brewing for four years and EU states can't say they were not warned

    This human tragedy has been brewing for years

    EU states can't say they were not warned
    Women's sportswear: From tackling a marathon to a jog in the park, the right kit can help

    Women's sportswear

    From tackling a marathon to a jog in the park, the right kit can help
    Hillary Clinton's outfits will be as important as her policies in her presidential bid

    Clinton's clothes

    Like it or not, her outfits will be as important as her policies
    NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

    Who's monitoring the outsourced NHS services?

    A report finds that private firms are not being properly assessed for their quality of care
    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
    How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

    How do Greeks feel about Syriza?

    Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
    From Iraq to Libya and Syria: The wars that come back to haunt us

    The wars that come back to haunt us

    David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
    Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

    Too busy to surf? Head to The Pool

    A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders