Northern Rock yet to pass on interest rate cuts

Despite calls by the Government for mortgage lenders to pass on interest rate cuts to borrowers, nationalised Northern Rock still has not passed on last week’s interest rate cut.

The crisis-torn bank said its standard variable rate (SVR) is still under review after Chancellor Alistair Darling said lenders should do more to help homeowners.

A spokesperson for Northern Rock said it was not abnormal for them to fail to change their variable rate immediately after a base rate move.

Last month, the bank set its new mortgage rates at uncompetitive levels, in a conscious effort to drive away new business.

Approximately, one fifth of lenders either failed to cut their rates following the two previous base rate reductions, or they did not pass on the full 0.25% cut.

Chancellor Alistair Darling told lenders that they should pass on recent interest rate cuts to homeowners. He said we are prepared to play our part. In turn, what we are saying to banks is you have got to help people as well.

If you can pass on those interest rate reductions, if you can help homeowners, help businesses, that will help all of us get through a very difficult time, added Mr Darling.

Prime Minister Gordon Brown met with bank chiefs for breakfast talks this morning at Number 10 to discuss the current housing market crisis.

The meeting will be attended by senior executives of Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide and the RBS.

However, a spokesperson for the Council of Mortgage Lenders (CML) said major lenders had already promised that customers with variable rates, an estimated 20% of outstanding mortgages, would see a reduction.

The spokesperson added that Mr Darling’s call was irrelevant for the vast majority of mortgage holders, who have tracker mortgages, which automatically follow any reduction in the Bank of England’s base rate, and fixed-rate mortgages.

The CML said that odd credit market conditions were of greater concern. To address this, lenders say fresh access to funds will be top of their wish list at a key meeting to discuss the state of the mortgage market.

The CML is urging the Bank of England to pump more liquidity in the market to kick-start lending.

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