Tuesday 12 February 2008

Rate cuts help banks to rake in millions

Some of Britain’s biggest banks are raking in up to £2m a day from hard-pressed homeowners by withholding The Bank of England’s recent quarter-point cut in interest rates.

The Bank of England announced on Thursday that it would cut rates to around 5.25% amid signs that Britain’s economy is slowing.

The country’s biggest lenders, including Nationwide, Halifax and Abbey, have all announced within minutes of the move that their variable mortgage rates would also fall by a quarter point.

However, while banks benefited immediately from the rate cut on their own borrowings, millions of homeowners with trackers or discounted mortgages will have to wait until next month for their repayments to fall.

The delay of nearly two weeks will boost the banks coffers by more than £50m, assuming about a quarter of Britain’s mortgages, worth nearly £295 billion, are on tracker rates that do not move immediately.

Ray Boulger of John Charcol, an adviser, said: “Most lenders have the facilities and flexibility to pass on rate cuts immediately, so I see no reason why they can’t implement it.”

About 25% of borrowers take out trackers when rates are expected to fall, compared with only 10% when rates are rising, so banks clearly gain from delaying rate cuts.

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