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Lenders react to base rate cut

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by Gill Montia
Lenders react to base rate cut

Yesterday’s 1% cut in the Bank of England’s base rate, to 2%, has met with a mixed response from mortgage lenders.

Despite pressure from Government Ministers, Halifax and Nationwide are opting not to pass on the full reduction to customers with standard variable rate (SVR) loans.

So far, HSBC, Bristol & West, Lloyds TSB and its lending arm, Cheltenham & Gloucester, have all pledged to cut their SVRs by the full 1%.

Woolwich, which is owned by Barclays, is reducing its SVR by 1.15% but this takes into account that fact that it took no action when the base rate came down by a dramatic 1.5%, in November.

Halifax customers will see a 0.25% reduction, although the UK’s leading mortgage lender has promised borrowers with base rate tracker deals that they will see the full 1% cut.

This is despite a “floor” included in tracker terms and conditions, which allows Halifax to leave the rate unchanged once the base rate falls below 3%.

Nationwide is taking similar action; its “floor” or “collar” on tracker loans will be disregarded on this occasion but it will only pass on a 0.69% reduction.

While borrowers on fixed-rate deals are unaffected by yesterday’s change, the cost of new fixed-rate loans should shortly begin to reflect the lower base rate.

On a typical £100,000 repayment mortgage, a 1% cut in a lender’s SVR reduces repayment by around £54 per month.

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News posted: December 5, 2008

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