UK: Mortgage lenders fail to pass on rate cut

Nearly one in five mortgage lenders across the UK have failed to pass on December’s interest rate cut a month after the Bank of England reduced the cost of borrowing, figures showed today.

Around 18 of the country’s 103 mortgage lenders have so far failed to pass on the cut, while 16 others have reduced rates by less than the full 0.25%.

Among those who have yet to announce a cut are the UK’s sixth largest building society Skipton and its 10th largest, Cardiff-based Principality.

A number of lenders have also passed on less than the full cut, with both internet bank Egg and crisis-hit lender Northern Rock reducing their mortgage rates by just 0.15%.

Alliance & Leicester, Scottish Widows Bank and Nottingham Building Society have all also cut their mortgage rates by only 0.2%.

But many banks and building societies have taken the opportunity of the interest rate cut to reduce their savings by more than the 0.25% reduction in base rates.

A total of 117 providers have so far cut their savings rates, with just 15 leaving them unchanged.

Among those who have not yet reduced the returns paid to savers is Northern Rock, as the bank tries to encourage consumers to save with it to help it through its current liquidity problem.

Alliance & Leicester, which failed to pass on the interest rate cut in full to its mortgage customers, has made the biggest reductions to its savings range, slashing rates by up to 0.5%, while HSBC has reduced returns on some accounts by up to 0.49%.

Britain’s biggest mortgage lender Halifax and Bradford & Bingley have both cut returns paid to savers by up to 0.4%, while a number of banks and building societies, including Britannia, Royal Bank of Scotland and NatWest, Yorkshire Bank and Sainsbury’s have decreased them by 0.3%.

The latest figures come the week the Bank of England’s Monetary Policy Committee holds its two-day interest rate setting meeting.

Economists widely expect the MPC to reduce interest rates to 5.25% in the near future, but are divided on whether the cut will come this month or in February.

A second cut in interest rates would provide some relief for hard-pressed homeowners following the five interest rate rises before December’s cut.

But even if the Bank does reduce interest rates on Thursday, there is no guarantee that the cut will be passed on to borrowers.

Louise Cuming, head of mortgages at Moneysupermarket.com, said many lenders now had only a very small proportion of their mortgage customers on standard variable rates.

She said this enabled them to get the good publicity by cutting their standard variable rate by the full 0.25%, even if they did not reduce their other mortgage rates.

She said: “If you really get down and analysis figures, the typical standard variable rate is becoming less and less key.

“What we are seeing is lenders who are passing on the full rate decrease, jigging around with their other rates.

“Fixed rates have hardly moved at all and some tracker rates have actually gone up. It is really less and less pertinent what the MPC do.”