Rates fall as low as 1694 – but will you benefit?

Mortgage lenders resist pressure to pass on rate cut

Despite intense pressure from the Government and the Bank of England to pass on cuts in the cost of borrowing in full, many mortgage lenders were slow to respond yesterday to the Bank's latest dramatic move.

Only four lenders said they would pass on the 1 percentage point reduction by the Bank in full to their standard variable rate borrowers. HSBC, Lloyds TSB, Woolwich (owned by Barclays) and Bristol & West (a brand of Bank of Ireland) all said they would be reducing SVR by at least the full 1 per cent, while other lenders continued to keep their rates under review.

However, the country's biggest mortgage lender, Halifax, part of Halifax Bank of Scotland group (HBOS), said that it would not be reducing its SVR by the full amount – despite the fact that the Government will soon own 43 per cent of the merged HBOS/Lloyds TSB Group.

HBOS spokesman Shane O'Riordain said: "Halifax has passed on all of the recent bank base rate reductions to its customers with an SVR mortgage. Many lenders have chosen not to pass on these reductions at all or have only passed them on in part. Halifax has balanced the interest of its customers with the commercial imperative of managing its business in a sustainable and prudent fashion."

He added that wholesale funding costs remained high, while the margin between savings and mortgage rates was now very low. All of the UK's leading banks are attempting to rebuild margins to restore profitability.

However, more than half a million Halifax tracker customers will benefit from the rate change. Most tracker customers automatically benefit from the change because 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.

Halifax's decision not to use the clause follows speculation that the 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.

Ray Boulger, senior manager at mortgage brokers 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 judgement 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 because of "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.

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

Representatives of small businesses also expressed concern that the rate cut will not be passed on. The Federation of Private Businesses said that "there is still evidence that credit restrictions are being imposed by lenders, including those set to receive funds from the European Investment Bank (EIB)". Last night the Chancellor, Alistair Darling, repeated his call on the banks to "maintain their commitments on keeping lending availability at 2007 levels".

The winner

Harp Funk, 46,

a wholesale import and exporter who trades with Selfridges and Fortnum & Mason, has a two-year tracker mortgage on his six-bed Georgian house in Harrogate, Yorkshire.

I'm not entirely sure what my exact monthly repayments are – I try not to think about it and so have it set up as a direct debit. But of course I know what I have been saving since the last cuts, I worked it out: it's about £100 a month. We'll probably save a further £20 a month if they pass on this latest cut. I still have around £250,000 left to pay off on the loan so I'm delighted by these extra cuts in the interest rates – provided that my mortgage lenders do actually pass on the reductions. I've read about plenty who don't. I assume they will; they did with the last. I guess I was quite fortunate because I used to be on a fixed-rate mortgage and moved to a new tracker deal just before all this banking crisis started getting reported. I own an import and export company, we provide wholesale goods from the US for large supermarkets in Europe. I'm not struggling yet but with the crisis affecting most industries you never know what's going to happen in the future. Every saving helps during times like this."

The loser

Christopher Barton, 59,

and his wife Judith are pensioners in Norfolk. They rely entirely on savings and interest rate drops have caused their monthly income to drop by up to 60 per cent.

I was really hoping the Bank of England wouldn't do what it was likely to do and drop the interest rates again. Those have had a catastrophic effect on our income; they have crucified our way of living.

In the past year, I'd estimate at least 60 per cent of our income has disappeared. In 2006, I took voluntary redundancy and an early pension.

I'd always been a prudent saver and made sure I never spent more than I had. My wife and I downsized our house and moved to Norfolk and until recently we were comfortable.

Ironically, we took the advice of Mr Blair and Mr Brown and put all our savings into the National Savings and Investment (NSI) scheme. I opted for the supposedly safe option. Now prudent savers like me are being punished by the Government rather than the borrowers who got us into this mess.

It's an absolutely crazy situation and we're very angry. This government has fuelled economic growth over the past 10 years on reckless borrowing, and rather than learn their lessons they continue to borrow and encourage people to borrow.

Lowering the interest rates simply encourages people to borrow more money than they actually have while punishing prudent savers. Come January, we have to go into our life savings.