Lenders slow to pass on interest rate cut

Mortgage lenders were slow to respond to today's 1 per cent interest rate cut with just four groups saying they would be reducing rates for their borrowers.

HSBC, Lloyds TSB, Barclays' lending arm the Woolwich and Bristol & West all said they would be reducing their standard variable rate (SVR) by at least the full 1 per cent, while other lenders continued to keep their rates under review.

But there was good news for more than half a million Halifax tracker customers when the group announced that it would be passing on all interest rate cuts to them in full.

Tracker mortgages automatically move up and down in line with the Bank of England base rate, but a clause in the Halifax deal gave it the option not to pass on all or any reductions once the base rate reached 3 per cent.

The move follows speculation that City watchdog the Financial Services Authority could force the group to pass on the cut as borrowers had not been made aware of the clause when they took out their mortgage.

The FSA warned earlier in the week that such clauses would be unenforceable if they were not included in the Key Facts Illustration which is given to borrowers when they arrange a loan.

Lloyds TSB, which also lends under the Cheltenham & Gloucester brand, was the first lender to announce a reduction, saying it would pass on the full cut ahead of news of the Monetary Policy Committee's decision.

The move reduces the group's SVR to 4 per cent, although as it pledges that the rate will never be more than 2 per cent above the base rate it had little choice.

HSBC and its lending subsidiary first direct, and Bristol & West and Bank of Ireland, which are part of the same group, were also quick to announce the reduction.

They were joined later in the day by the Woolwich, which is reducing its SVR by 1.15 per cent, after failing to pass on any of November's cut to borrowers.

But despite the early announcements, the majority of lenders are not expected to pass on today's reduction in full to their SVR customers.

Three-quarters of groups with an SVR failed to cut their rates by the full 1.5 per cent following last month's cut, with a handful of lenders not reducing their SVR at all.

Ray Boulger, senior technical manager at John Charcol, said: "While borrowers may have received the news of another significant rate cut with hope, I expect very few lenders to pass on the whole of this month's cut, with most reducing their SVRs by between just 0.25 per cent and 0.5 per cent.

"Some who were coerced by the Government into passing on all of last month's 1.5 per cent cut against their better commercial judgment may choose to be parsimonious this time, unless there is further Government browbeating."

Around 600,000 borrowers with tracker mortgages will also not benefit from the full reduction due to collars, under which lenders do not have to pass on cuts once the base rate falls below a certain level.

Nationwide has a collar which kicks in at 2.75 per cent, meaning its tracker customers will benefit from only 0.25 per cent of today's cut, while the Skipton and Yorkshire Building Societies have one of 3 per cent, meaning borrowers will not see any reduction.

But the UK's other estimated 3.3 million tracker customers will automatically benefit from the fall in rates, saving people with a £150,000 mortgage around £85 a month, while those with a £250,000 one will be £142 a month better off.

Lenders scrambled to withdraw their tracker deals following November's surprise 1.5 per cent cut, but so far only Lloyds TSB, which pulled the products yesterday, Abbey and Alliance & Leicester have withdrawn their ranges for repricing.

While the rate cut is likely to be good news for some borrowers, it is bad news for savers, particularly retired people who rely on deposit returns for their income.

Adrian Coles, director general of the Building Societies' Association, said: "Savers will be disappointed at today's news.

"Building societies which pass on both this base rate reduction and the last could halve the interest which they pay to their investors in a very short period of time."

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