Banks refuse to cut rates

HOMEOWNERS were warned today that the expected cut in interest rates on Thursday will not be passed on to them in full.

David Hodgkinson, chief operating officer at HSBC, said there would be some "stickiness" in mortgage rates even if there is a big reduction in the Bank of England's base rate.

Economists expect the Bank to lower the rate by at least half a point to four per cent and there are hopes of an unprecedented full percentage point cut.

But Mr Hodgkinson, part of a business delegation accompanying Gordon Brown in the Gulf, said home loan rates were unlikely to fall in line in the short-term.

The reluctance of the banks and building societies to pass on the full benefit of Bank of England cuts will anger millions of ordinary borrowers struggling to make ends meet.

Liberal Democrat Treasury spokesman Vince Cable said it was "difficult to see the justification" for the banks not passing on the cut, adding: "Banks are only too happy to increase the cost of lending when interest rates go up. For customers to get a fair deal, this needs to be a two-way street. When the whole banking industry owes so much to taxpayers for their very survival, any bank will find itself on very thin ice if it is found to be unfairly profiteering from its customers.

"As the credit crunch continues to keep millions of customers and small businesses in a stranglehold, borrowers need interest rate cuts now."

It comes on the day that Lloyds TSB and HBOS confirmed that they will accept up to £17 billion of government support when they merge.

Increasing numbers of homeowners are now having to accept their lenders' "standard variable rate" because they have not been able to secure new fixed or tracker deals.

Some industry estimates suggest that 30 per cent of all home loans are now on SVRs, which are set at the discretion of the lender and are typically far higher than the best deals.

One mortgage expert today said only half of lenders have passed on any benefit after the 0.5 per cent cut last month and warned that even fewer may react to this week's reduction.

Darren Cook, at comparison website moneyfacts.co.uk said: "The base rate is expected to fall again this week but we could have the situation where even less or no lenders choose to pass on a benefit to their customers."

The big lenders that have accepted government bail-outs — Halifax, NatWest and Lloyds TSB — are seen as most likely to pass on the benefit because of political pressure.

For a typical £200,000 London repayment mortgage, a half point cut will mean around £60 a month off, while a full point will slash £120 a month from the monthly bill — if it is passed on.
Analysis by moneyfacts shows the lowest SVR is the 5.5 per cent offered by First Direct — still a full percentage point over the base rate. The most expensive from a major high street lender is the 7.34 per cent from Northern Rock, which is owned by the Government and has refused to offer new fixed rate deals to most of its customers.
Britain's biggest mortgage lender Halifax has an SVR of 6.5 per cent, while Nationwide is on 6.19 per cent.

Gordon Brown's spokesman said: "He thinks commercial decisions are best taken by commercial organisations. Obviously when official rates are cut customers would expect to see the benefit of that, but at the moment we are seeing difficulties in the interbank market."