Mortgage lenders pass on rate cut

Lloyds TSB and HSBC today said they would be passing on the 1 per cent interest rate cut to their variable rate customers in full.

HSBC announced its decision within minutes of the rate cut, while Lloyds TSB, which also lends under the Cheltenham & Gloucester brand, had already said it would be passing on the reduction to its standard variable rate (SVR) customers.

But other lenders were slower to respond, with most of the major players saying their SVR was currently under review.

HSBC is reducing its SVR to 4.44 per cent, while Lloyds TSB, which pledges that its SVR will never be more than 2 per cent above the base rate, will have a new rate of 4 per cent from 1 January.

The group is also relaunching its fixed-rate mortgages tomorrow, offering a two-year fixed rate deal of 3.89 per cent for people borrowing up to 75% of their home's value, who pay a 2.5 per cent arrangement fee.

It withdrew its tracker range yesterday for repricing and will be relaunching them early next week.

Despite the early cuts, the majority of lenders are not expected to pass on today's base rate 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 Barclays' lending arm, the Woolwich, not reducing its SVR at all.

If lenders do pass on the 1 per cent cut in full, it would save borrowers with a £150,000 mortgage around £85 a month, based on a new rate of 4 per cent.

People with a £250,000 mortgage will be around £142 a month better off, saving them more than £1,700 during the course of a year.

The UK's 4.7 million customers with discount and tracker mortgages, whose rates should automatically move up and down in line with the base rate, will also not all benefit from today's cut.

It is thought around 600,000 people have trackers with lenders that impose a collar, meaning that when base rates fall below a certain level, they no longer have to pass on the reduction.

Nationwide has a collar which kicks in at 2.75 per cent, meaning its tracker customers will benefit from only 0.25% 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 more than half a million Halifax tracker customers received some good news today when the group said it would not exercise an option in the mortgage's terms and conditions allowing it not to pass on all or any reduction once the base rate fell below 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 group said it had been its own decision to pass on all future interest rate reductions to existing tracker customers, adding that it had consulted with the FSA.