Articles | Banks urged to pass on rate cut

Banks urged to pass on rate cut

Published: Friday, 5 December 2008, 6:58AM

Mortgage lenders are being urged to pass on the interest rate cut in full - while one nationalised bank refuses to do so.

All banks and building societies are being told to help their customers after only a handful of lenders said they would pass on Thursday's 1 per cent reduction in full.

But bailed-out Bradford & Bingley said it would be passing on just three-quarters of the cut to its mortgage customers, reducing its standard variable rate to 4.84 per cent from January 4.

Prime Minister Gordon Brown said: "I think banks should really pass on the interest rate cut. We are talking to the banks.

"Remember last time there was a cut, we had to speak to them before it was passed on and we will be speaking to them again."

The dramatic percentage point cut left the cost of borrowing at 2 per cent - a level not seen since 1951 and equal to the all-time record low in the UK. The European Central Bank also cut the eurozone rate from 3.25 per cent to 2.5 per cent.

HSBC, Nationwide, Lloyds TSB, Barclays' lending arm the Woolwich and Bristol & West all said they would be reducing their standard variable rate (SVR) by at least the full 1 per cent, while other lenders continue to keep their rates under review.

Halifax, Britain's biggest lender, is reducing its SVR by 0.25 per cent.

Lenders claim the cost of borrowing between banks remains high and this determines their ability to lend - not interest rates.

Three-month Libor, upon which variable rate mortgages are based, has fallen to 3.37 per cent, down from 3.71 per cent before the cut.

The rate is well up on its pre-credit crunch range of being between 0.15 per cent and 0.2 per cent above the base rate.

If lenders pass on the rate cut in full, people with a £150,000 mortgage will save around £85 a month, while those with a £250,000 one will be £142 a month better off.

Liberal Democrat Treasure spokesman Vince Cable said: "Bankers are being pushed and pulled all over the place with no clear sense of direction or strategy. The top priority must be to maintain lending to keep the economy going.

"The Government should also recognise that some banks are having to borrow money at rates well above Bank of England base rate. To force these banks to pass on the full rate cut would mean them lending at a loss."