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
Gregg Wallace in Summer's Supermarket Secrets
tv All of this year's 15 contestants have now been named
Sport
The giant banner displayed by Legia Warsaw supporters last night
football Polish side was ejected from Champions League
Arts and Entertainment
Could we see Iain back in the Bake Off tent next week?
tv Contestant teased Newsnight viewers on potential reappearance
News
i100(and it's got nothing to do with the Great British Bake Off)
PROMOTED VIDEO
Voices
The Ukip leader has consistently refused to be drawn on where he would mount an attempt to secure a parliamentary seat
voicesNigel Farage: Those who predicted we would lose momentum heading into the 2015 election are going to have to think again
Arts and Entertainment
Cara Delevingne made her acting debut in Anna Karenina in 2012
film Cara Delevingne 'in talks' to star in Zoolander sequel
News
i100
Sport
Mario Balotelli pictured in his Liverpool shirt for the first time
football
Life and Style
tech
Finacial products from our partners
Property search
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

    SAS Business Analyst - Credit Risk - Retail Banking

    £450 - £500 per day: Orgtel: SAS Business Analyst, London, Banking, Credit Ris...

    Project Manager - Pensions

    £32000 - £38000 Per Annum Bonus, Life Insurance + Other Benefits: Clearwater P...

    KYC Analyst, Birmingham - £200-£250 p/d

    £200 - £250 per day + competitive: Orgtel: KYC Analyst, Key Banking Client, Bi...

    Test Manager - Banking - Yorkshire - £450 per day

    £400 - £500 per day: Orgtel: Test Manager - Banking - West Yorkshire - £400-£5...

    Day In a Page

    Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

    The phoney war is over

    Russian troops and armour pour into Ukraine
    Potatoes could be off the menu as crop pests threaten UK

    Potatoes could be off the menu as crop pests threaten UK

    The world’s entire food system is under attack - and Britain is most at risk, according to a new study
    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
    From Mozart to Orson Welles: Creative geniuses who peaked too soon

    Creative geniuses who peaked too soon

    After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
    Caught in the crossfire of a cyber Cold War

    Caught in the crossfire of a cyber Cold War

    Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

    Salomé: A head for seduction

    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
    From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

    British Library celebrates all things Gothic

    Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
    The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

    Is the Hard Rock Café worth fighting for?

    The restaurant chain's owners are currently embroiled in a bitter legal dispute
    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

    In search of Caribbean soul food

    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
    11 best face powders

    11 best face powders

    Sweep away shiny skin with our pick of the best pressed and loose powder bases
    England vs Norway: Roy Hodgson's hands tied by exploding top flight

    Roy Hodgson's hands tied by exploding top flight

    Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
    Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

    Di Maria and Ronaldo: A tale of two Manchester United No 7s

    They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
    Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

    Robert Fisk: No victory for Israel despite weeks of devastation

    Palestinians have won: they are still in Gaza, and Hamas is still there
    Mary Beard writes character reference for Twitter troll who called her a 'slut'

    Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

    The Cambridge University classicist even wrote the student a character reference
    America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

    America’s new apartheid

    Prosperous white districts are choosing to break away from black cities and go it alone