Mortgage lenders fail to pass on reduction

BANKS AND building societies yesterday resisted pressure to cut mortgage interest rates by the full quarter point announced by the Bank of England's Money Policy Committee.

The Halifax said it would not drop its headline standard variable rate from 6.85 per cent, declining to comment on its plans for savings rates. Nationwide made no cut, saying only that it was reviewing its rates.

Abbey National dropped its standard variable rate mortgage by 0.1 per cent to 6.85 per cent from 1 July, promising that savings rates would not fall further than this.

It is the second time in a row that most lenders have declined to pass on the Bank of England's cut, depriving the average borrower of pounds 25 a month.

However, a string of recently launched "direct" mortgage banks did follow the Bank's cut. Norwich Union's tracker mortgage, which promises to follow base rate cuts, dropped from 6.1 to 5.85 per cent. Virgin Direct cut its rate by 0.25 points to 6.2 per cent. And Standard Life Bank cut its rate by 0.17 points to 5.88 per cent.

Consumer groups and housing market experts said most banks were defending their profits at the expense of their customers.

Mick McAteer, senior policy officer at the Consumers' Association, said: "There is always this sting in the tail in interest rates and it highlights the need for a vibrant building society sector. The listed banks simply have to maintain their margins to keep their shareholders happy."

John Wrigglesworth, a housing market expert, warned that lenders would suffer a drop in income even if they kept mortgage and savings rates the same. The lower base rate meant they made less interest on their reserves.

"Lenders are caught between the rock of bad publicity and the hard place of reduced income. What I fear is that some banks may try to make up the loss by introducing fees and charges on their accounts," Mr Wrigglesworth said.

A spokesman for Abbey National insisted that the full cut could not be passed on because savings rates had to be maintained.

"Deposit rates are getting to the point where you might as well stash your savings under the mattress," the spokesman said.