Northern Rock hedges on latest base rate cut

Northern Rock hedges on latest base rate cut

Northern Rock mortgage borrowers will not all receive the full benefit of last week’s cut in the base rate.

The nationalised lender’s tracker rate customers will see the full 1% reduction but for those on its standard variable rate (SVR) the reduction will be 0.5% taking the rate down to 5.34%, from 1st January.

Mortgage borrowers, who have remained loyal to Northern Rock for seven years and therefore qualify for a 0.25% discount below SVR, will pay interest at 5.09%.

The bank passed on November’s dramatic 1.5% base rate cut in full and says it latest decision comes after giving careful consideration to both borrowers and savers.

In November, its rates for savers were unchanged although a review is currently taking place.

However, Northern’s Rock’s response to December’s base rate cut flies in the face of government threats.

Ministers have warned that lenders could face legal action if they fail to pass on reductions in full.

The dilemma for lenders was addressed this week by the director general of the Council of Mortgage Lenders, who accused the Government of producing policy objectives that are conflicting and incoherent.

Banks and building societies need to recapitalize to weather the credit crisis and therefore want to maintain attractive savings rates.

At the same time, the Government is insisting that lending to individuals and businesses increases and that base rate cuts are passed on in full.

Meanwhile, three-month Libor, the key rate at which banks lend to one another to fund mortgage business, remains well above the base rate.

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