Lenders told: cut rates or face fines

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The Independent Online
MORTGAGE LENDERS are to be warned by Gordon Brown to pass on bigger cuts in interest rates to borrowers or face the threat of statutory regulations.

The Chancellor is alarmed at the failure to deliver bigger cuts in rates after successive reductions in interest rates by the independent Bank of England.

"When we have had a cut of a quarter per cent in interest rates, the building societies have only cut their rates by 0.15 per cent. The Chancellor thinks that is not good enough," said a cabinet source. Ministers also fear many home owners are being ripped off by hidden charges on their mortgages, such as higher interest rates, penalty charges for fixed- rate deals and long lock-in periods.

Their move will be seen as an attempt to reassure middle-class voters that the Blair Government intends to keep together the coalition of support that gave it a landslide at the last election.

The Chancellor will publish a consultation paper on the mortgage industry within days. It will carry the "stick" of using a reserve power in the Financial Services and Markets Bill to put the lenders' voluntary code of practice on a statutory footing if self-regulation is seen to have failed.

Stephen Byers, the Secretary of State for Trade and Industry, will also increase the pressure on the lenders this week with a wide-ranging White Paper to help consumers. It will include plans to force building societies to be more explicit on their charges so customers can compare costs and know whether they are getting value for money on their mortgages.

Other measures in the White Paper will include giving trading standards officers powers to register builders and fine "cowboy" operators. There will also be a consumer helpline to compare high street prices, new laws to stop rogue traders killing competition and an inquiry into the high price of soft drinks in pubs and clubs.

The moves are part of an effort to regain control of the domestic agenda after Labour's European election defeat and buffeting on health and transport. Ministers will, however, make clear there can be no turning back from the modernising Blairite agenda.