Banks fail to pass on interest rate cuts

Further cuts to UK interest rates will not guarantee cheaper mortgages, brokers have warned. Last month a number of lenders cut their standard variable rates (SVRs), including Abbey, Coventry Building Society and Standard Life. But only one of them Standard Life mirrored the most recent half per cent base rate reduction.

Since UK interest rates were cut to 4.5 per cent in late September, half of all mortgage lenders have resisted passing on any of the reduction in their variable rates.

The majority of those that have reduced their rates have not done so by the full half per cent. Many have also hiked up rates.

The majority of those that have reduced their rates have not done so by the full half per cent. Many have also hiked up rates on new tracker mortgage deals, said Melanie Bien director of independent mortgage broker Savills Private Finance.

Mortgage analysts expect even fewer lenders to pass on new reductions if the Bank of England makes another cut to interest rates.

While the cost of obtaining wholesale credit remains high, brokers do not expect mortgage rates to ease.

Similarly, while swap rates, which are used to fund fixed-rate mortgages, have fallen, fixed-rate mortgage rate reductions from lenders such as Abbey and Nationwide have been modest.

“In the past, we might have expected the current base rate to result in two year fixed rate deals of 3.99 per cent,” said Ray Boulger, senior technical manager at John Charcol. “But that was credit crisis.”

Those who might benefit are savers. Providers unable to access wholesale funding are still competing for deposits. So, if rates do fall again, analysts say it is unlikely that banks will cut savings rates by the full amount.