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Mortgages fell only a fraction of last rate cut

Banks have kept most of last month's Bank of England's base rate cut for themselves, research for the Independent shows today.

An analysis of more than 1,000 current mortgage deals shows that rather than pass on the 1 per cent cut lenders have trimmed the average fixed rate deal by just .14 per cent, from 5.76 to 5.62 per cent.

Tracker mortgages have become more expensive since the Bank of England's measure on December 4. The average loading on capped rates has increased from 2.35 per cent to 2.6 per cent above base rate - up .25 per cent.

Someone taking out a typical tracker for a £200,000 mortgage will pay £40 a month more, when the base rate cut should have reduce payments by £160 a month.

The analysis by Defaqto financial experts shows that many of Britain's 11.7m mortgage holders will find that they do not benefit much if at all from the Bank of England's rate cuts when they come to re-mortgage. Home-buyers seeking to enter the property market will find it more expensive to borrow money, putting further downward pressure on plummeting house prices.

The Bank of England cut the base rate by half a per cent today to 1.5 per cent - its lowest level for more than 300 years in an attempt to stave off a severe recession. Policymakers hope banks and building societies will pass on the cut in full to homeowners, putting more money into the economy.

However David Black, principal banking consultant at Defaqto, said the analysis showed many banks were seeking to rebuild their crippled balance sheets at the expense of borrowers.

This week, First Direct has increased its offset base rate tracker from 3.49 to 3.89 per cent - an increase in the margin over base rate from 1.49 per cent to 1.89 per cent.

HSBC has increased its base rate tracker margin from 1.64 per cent to 1.95 per cent.

Many lenders have failed to change their standard variable rate at all after December's 1 per cent cut - including GMAC-RFC and Norwich & Peterborough and West Bromwich building societies. Leeds building society has cut its rate by less than half a per cent.

Mr Black expected many landers would take tracker mortgages off the market today and replace them with more expensive products in order to boost margins, rather than see existing products follow rates down.

Half of British borrowers are on fixed rates, 40 per cent on tracker or discounted variable rates and less than 8 per cent on standard variable rates.

The Council of Mortgage Lenders warned borrowers not on trackers that banks were unlikely to lower rates much further regardless of how low the base rate fell.

"Many borrowers on tracker rates are likely to benefit from a reduction in Bank rate. However, as the Bank rate is already very low, some trackers will be reaching their floors," the CML said.

"Those borrowers will still be paying very low rates historically; the average mortgage rate over the last 10 years has been 5.84 per cent," the CML said.

"Borrowers with standard variable rate mortgages should not expect a cut in Bank rate to be matched by an equivalent reduction in their mortgage rate, as there will not be an instant equivalent reduction in the cost of funds to lenders."

The CML said that banks were trying to rebuild their balance sheets as well as be fair to savers and borrowers.

However Which? chief executive, Peter Vicary-Smith, said the banks must treat savers and borrowers equally - rather than just cutting savings rates and not mortgages.

"Banks can't have their cake and eat it – they must either maintain rates for savers or pass on the full benefits of the rate cut to their mortgage customers," Mr Vicary-Smith said.

"Many banks are offering rates as low as 0.1 per cent on savings accounts so for them to say they are looking out for savers by not passing the rate cut onto borrowers is a hollow argument.

"Individual consumers didn't cause the financial crisis and shouldn't be the ones to suffer as the banks try to recapitalise their businesses."