Page last updated at 11:26 GMT, Sunday, 7 December 2008

Banks face pressure on rate cut

HBOS headquarters in Halifax
Many homeowners will benefit from a cut in the Bank rate

Banks and building societies are moving after pressure from MPs to pass on the latest cut in interest rates to their mortgage customers.

Some of the major lenders made an immediate decision to pass on the one percentage point Bank rate cut to customers with variable rate mortgages.

RBS/NatWest, which is majority owned by the government, will cut by 0.75 of a percentage point, it said on Friday.

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

A spokesman for HBOS said the government had expected it to be run along commercial lines, which was what it was doing.

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

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.

The Halifax - part of HBOS with Bank of Scotland - has automatically passed Thursday's Bank of England rate cut on in full to those with tracker mortgages.

Customers with a Halifax standard variable rate mortgage (SVR) will see their rate fall from 5% to 4.75% on 1 January.


The Halifax is benefiting from around 12bn of taxpayers' money as part of a government bailout.

RBS/NatWest, of which 58% is owned by the government, is cutting its SVR from 5.19 to 4.44%, a 0.75 percentage point fall, from 1 January. Bradford and Bingley said on Friday that it was dropping its SVR by the same amount to 4.84% with effect from 4 January.

However, One Account SVR customers with RBS will see a one percentage point fall after failing to have the November Bank rate cut passed on in full.

The Chancellor, Alistair Darling, made a fresh appeal to banks to pass on the new rates to help individuals and businesses.

"Banks must treat their customers fairly," he said.

"In the same way that banks expect their customers to stick to their side of the deal, customers should be able to expect that banks will stick to theirs."

The chancellor insisted that while there were "some pretty difficult conditions" ahead, the UK would get through the current tough times.

'Decent margin'

Health Secretary Alan Johnson said on the BBC's Question Time that HBOS needed to explain its decision on rates.

"I'd want to know what the logic is behind that. We want these banks to continue to be effective and we want them to continue to ensure their own futures," he said.

"So I think we'd have to see what their rationale is, what the circumstances are in which they've made that announcement."

But Shane O'Riordain, of HBOS, defended the bank's decision.

He said: "I think it is worth remembering the government has said it expects our bank to be run on commercial lines, and that's exactly what we're doing.

"All we are simply doing is seeking to achieve a decent margin like any other business, nothing more and nothing less."

The government should introduce a law which says all Bank of England rate cuts must be passed on by the banks
Doris, Manchester

Interest rate cuts might be good for mortgage-holders, but savers are likely to see their returns drop.

Sir Howard Davies, the former deputy Governor of the Bank of England, said the government should stop trying to dictate terms to the banks.

"The banks have got to raise money both from depositors and indeed from the inter-bank market," he said.

He added that the balance was not the same for every bank, so they would take a slightly different attitude to whether they would pass it through.

"I think that for the government to get involved in micro-managing the particular interest rate decision of particular individual banks is a mistake," he said.

HSBC, Lloyds TSB/Cheltenham and Gloucester and Bristol & West have announced they will pass on the one percentage point cut in full to standard variable rate customers.

Lloyds TSB, RBS and HBOS have all pledged to pass on the rate cuts in full to small business customers.

Most existing tracker mortgage homeowners with the Yorkshire Building Society will not see the full cut because it has a floor, or collar, on its deals.

About 40,000 Abbey customers with "flexible" deals have a clause in their terms and conditions which means that if bank rate goes below 3%, the Abbey can widen the tracking differential - in other words keep the customer's mortgage rate up, to negate the effect of the Bank rate reduction.

However a spokeswoman said this clause would not be enforced.

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

Many SVR customers across the industry have been put on the variable rate when their fixed-rate deals came to an end.


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 Under review
Lloyds TSB/ C&G 6.50% 5.00% -1.5 4.00% -1
Northern Rock 7.34% 5.84% -1.5 Under review
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 Under review
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 Under review
Yorkshire BS 6.60% 5.60% -1 Under review
GE Money 10.39% 8.44% -1.95 Under review
Coventry BS 6.84% 5.34% -1.5 Under review
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 Max 5% Min -0.95
One Account (RBS) (avg) 6.55% 5.55% -1 4.55% -1

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