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.
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
How couples can protect their financial interests when cohabiting
How to protect your assets if the stock markets begin to head south again
A student's guide to financial survival: You don't have to drown in debt at university
Child Maintenance Service to replace Child Support Agency - but is it better?
Bargain Hunter: Kit yourself out in sports gear - at a healthy discount of up to 75%
- 1 Students heading off to 'charity challenge' grounded at Gatwick after travel firm goes bust
- 2 Notting Hill Carnival: Woman shares selfie after being ‘punched in face for telling man to stop groping her’
- 3 Daily Show's Jon Stewart destroys Fox News for its Ferguson coverage
- 4 When elitism grips the top of British society to this extent, there is only one answer: abolish private schools
- 5 Like Jennifer Aniston, I am no less of a woman because I am childless
Exclusive: We share blame for creating 'jihad generation', says Muslim strategist
Robin Williams Emmys tribute led by Billy Crystal criticised for including 'racist' joke about Muslim woman
The Rotherham child abuse scandal is a tale of apologists, misogyny and double standards
Scottish independence TV debate: Pumped-up Alex Salmond bounces back in bruising second round against Alistair Darling
Do you realise just how foolish the UK looks?
Ukip Douglas Carswell defection: Tory MP jumps ship to join Nigel Farage
- < Previous
- Next >
iJobs Money & Business
£450 - £500 per day: Orgtel: SAS Business Analyst, London, Banking, Credit Ris...
£32000 - £38000 Per Annum Bonus, Life Insurance + Other Benefits: Clearwater P...
£200 - £250 per day + competitive: Orgtel: KYC Analyst, Key Banking Client, Bi...
£400 - £500 per day: Orgtel: Test Manager - Banking - West Yorkshire - £400-£5...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony