Page last updated at 16:05 GMT, Monday, 5 January 2009

Who is set to pass on rate cuts?

For sale sign
Many homeowners will benefit from a cut in the Bank rate

Some of the major lenders have made an immediate decision to pass on the Bank rate cut to customers with a variable-rate mortgage.

HSBC, Lloyds TSB/Cheltenham and Gloucester and Bristol & West have announced they will pass on the one percentage point cut in full so far.

The UK's biggest lender HBOS will only pass on 0.25 of a percentage point.

Most existing tracker deal customers with the Yorkshire Building Society will not see the full cut.

These lenders have a floor set out in contracts with those customers.

Rate cut

The majority of major lenders are putting their standard variable rate (SVR) interest rates under review, following the one percentage point cut in the Bank rate.

The rates at which the banks can borrow money are gradually but steadily coming down and where possible they are passing this on to their borrowers
Angela Knight, BBA

Monthly repayments on a typical 150,000 repayment mortgage will drop by approximately 75, as a result of the latest cut. This would be automatic for 3.3 million tracker customers, but would also benefit SVR customers if the Bank rate cut is passed on.

Any changes to SVRs would tend to come into force on 1 January, so many lenders said they were monitoring the market in the coming days before making any decision.

Even before the Bank rate change, Lloyds TSB/Cheltenham and Gloucester announced that it would pass the cut on in full to SVR customers.

However, it is obliged to do so, as it pledged in 2002 that its variable rates would never be more than two percentage points above the Bank rate.

The Skipton has a pledge that its SVR will not to be more than three percentage points above and so will make a cut of at least 0.95 percentage points.

Barclays' lending arm, the Woolwich, failed to pass on any of November's 1.5 percentage point cut in the Bank rate to SVR customers, but has now announced it will cut the rate by 1.15 percentage points. It said fewer than 3% of customers were on SVR deals.

The majority of existing customers with all lenders who have deals that track the Bank rate will benefit from the drop.

Initially, it seemed that customers on tracker deals with the Nationwide would see only a 0.25 percentage point cut in interest on their repayments.

But late on Thursday the UK's biggest building society said it was passing on the full one percentage point cut to existing tracker customers.

However, Yorkshire Building Society said 88% of their existing tracker mortgage customers would not see any fall. A floor, or collar, was written into their contracts, stipulating this would be enforced if the Bank rate fell below 3%.

The vast majority of existing tracker customers with the Skipton also have an identical 3% floor.

Major lender

HBOS said existing tracker customers, about 500,000 people, would get the full benefit of the Bank rate cut, as it was not enforcing an option of a 3% floor.

Monopoly pieces
The availability of mortgages is still at a very low level

But the UK's biggest lender said it was only cutting its SVR by 0.25 of a percentage point.

"In making this decision, Halifax has balanced the interest of its customers with the commercial imperative of managing its business in a sustainable and prudent fashion," said Shane O'Riordain, HBOS spokesman, explaining that previous cuts had been passed on in full.

"As a mortgage and savings provider, Halifax makes a profit through the difference between mortgage and savings rates. As UK interest rates are very low now, the margin between mortgages and savings has compressed.

"This is a key consideration for any financial institution, particularly at a time when the economic outlook is difficult."

The bank's interest rates for savers remain under review - the same as all the other banks.

Some lenders are temporarily withdrawing tracker deals for new borrowers, in order to re-price them following the Bank rate cut.


The fall in the Bank rate is expected to be a blow to savers, who are likely to see the interest rates on their deposits fall.

All the major lenders have said that their savings rates are under review.

The key to mortgage costs is Libor - the London Interbank Offered Rate - as this is the rate that banks lend to each other.

This has fallen in recent weeks, getting closer to the level of the Bank rate, and stood at 3.79% on Tuesday.

"Banks are determined to do everything they can to see their customers through the downturn, be they individual savers and borrowers or businesses," said Angela Knight, the chief executive of the British Bankers' Association, which speaks on behalf of the major lenders.

"The rates at which the banks can borrow money are gradually but steadily coming down and where possible, they are passing this on to their borrowers."

Michael Coogan, director general of the Council of Mortgage Lenders, said lenders had to weigh up the effect that cutting rates would have on savers as well as borrowers.

But Chancellor Alistair Darling said he hoped all lenders would pass on the cut.


Lender SVR before Nov BoE decision SVR after Nov BoE decision Rate change (percentage points) SVR after Dec BoE decision Rate change
HBOS 6.50% 5.00% -1.5 4.75% -0.25
Nationwide BS 6.19% 4.69% -1.5 4.00% -0.69
Abbey 6.94% 5.44% -1.5 4.94% -0.5
Lloyds TSB/ C&G 6.50% 5.00% -1.5 4.00% -1
Northern Rock 7.34% 5.84% -1.5 5.34% -0.5
Barclays 6.64% No change 5.49% -1.15
RBS 6.69% 5.19% -1.5 4.44% -0.75
HSBC 6.25% 5.44% (5 Dec) -0.81 4.44% -1
Alliance & Leicester 6.94% 5.84% -1.1 5.34% -0.5
Bradford & Bingley 7.09% 5.59% (7 Dec) -1.5 4.84% (4 Jan) -0.75
Bristol & West 6.59% 5.49% -1.1 4.49% -1
Britannia BS 6.30% 5.30% -1 4.99% -0.31
Yorkshire BS 6.60% 5.60% -1 4.99% -0.61
GE Money 10.39% 8.44% -1.95 Under review
Coventry BS 6.84% 5.34% -1.5 4.99% -0.35
Standard Life 6.59% No change 5.79% -0.8
Clydesdale & Yorkshire 6.64% 5.14% -1.5 Under review
Chelsea BS 6.94% 5.79% (31 Dec) -1.15 Under review
Skipton 6.45% 5.95% -0.5 5% -0.95
One Account (RBS) (avg) 6.55% 5.55% -1 4.55% -1

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