Lenders reluctant to pass on rate cut to homeowners

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by Lin Freestone

Banks and building societies are under growing pressure to reduce their interest rates in line with the Bank of England’s 1.5% cut in the interest rate.

Following yesterday’s rate cut, approximately 30 lenders withdrew their tracker mortgage products from the market. Brokers are warning that the few remaining are likely to be pulled over the weekend.

So far only Lloyds TSB and Abbey have said that they will pass on the rate cut in full to their mortgage clients. HSBC, Barclays, RBS and Nationwide are reviewing the situation and have yet to decide whether to pass on the full Bank of England cut to mortgage borrowers

There is heavy government pressure to pass on any interest rate cuts to help struggling homeowners, specially on those lenders that are backed by taxpayers’ money.

Yvette Cooper, Chief Secretary to the Treasury, has told lenders that the government stepped in to make the banking system safe, to support the banks. It is right now that the banks do their bit to support everybody else.

Last month, less than half of lenders passed on to customers the half-point cut in interest rate made in October in full.

It has been estimated that more than four million homeowners on existing tracker mortgages will benefit immediately because their deals are directly linked to the base rate. A household with a £150,000 loan would save almost £120 a month on the cost of its mortgage repayments.