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http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3166703/Financial-crisis-Major-mortgage-lenders-fail-to-pass-on-rate-cut.html
Financial crisis: Major mortgage lenders fail to pass on rate cut
Homebuyers could see their mortgage costs rise despite the interest rate cut, after some banks yesterday failed to pass on the cut while others pulled some of their most competitive deals.
By Myra Butterworth, Personal Finance Correspondent
Last Updated: 6:00PM BST 09 Oct 2008
Major mortgage lenders fail to pass on rate cut
Nationwide said it would not be passing on the 0.5 pc point drop in rates Photo: JUSTIN LEIGHTON
Abbey announced it was increasing all its tracker home loan deals by 0.5 percentage points, meaning new customers will pay exactly the same as when the bank rate was at 5 per cent.
And along with Nationwide, it said it would not be passing on the half percentage point drop in rates to customers through its standard variable rate.
Experts suggested other lenders were likely to follow suit to prevent them becoming the best deals on the market and being inundated with applications.
The decisions by some of the country's biggest mortgage lenders comes on the bank of Gordon Brown's £500 billion bail-out of British banks.
No building societies at all have offered customers any reductions in their borrowing costs, according to Moneyfacts.
Gordon Brown will be angered by the refusal to cut rates as he has publicly called for consumers to benefit from reductions in the base rate.
Part of the reason for lender's reluctance to pass on the reduction is that three month Libor - the rate which lenders use to price many of their mortgages - remains high, reflecting the lack of willingness among banks to lend to one another. Three month Libor rose slightly yesterday to 6.28 per cent.
Andrew Montlake, of Cobalt Capital, a mortgage broker, said: "Many lenders are showing their true colours right now. The Government has effectively bailed out the banking sector but some of the banks, by withdrawing their more competitive products or upping their tracker rates, are refusing to bail out existing homeowners and first-time buyers.
"For certain lenders, profits are clearly more important than the man on the street."
The rate reduction is good news for those currently on base-rate trackers who will see an immediate reduction in their monthly mortgage payments.
But it is not such good news for those coming up to remortgage who are considering a tracker as more lenders are expected to raise rates, according to mortgage brokers.
Melanie Bien, of mortgage brokers Savills Private Finance, said: "Since the rate cut, trackers are looking extremely competitive and lenders don't need or want to chase market share, preferring to improve margins instead.
"The rate reduction will give them the opportunity to increase margins further, which is likely to happen in coming days."
Lenders that announced they would be passing on the interest rate cut to borrowers, included Lloyds TSB, Halifax, The Woolwich and Royal Bank of Scotland.
Lloyds TSB and Halifax have promised borrowers that their standard variable rates will never be more than two percentage points above the Bank of England base rate.
Financial crisis: Major mortgage lenders fail to pass on rate cut
Homebuyers could see their mortgage costs rise despite the interest rate cut, after some banks yesterday failed to pass on the cut while others pulled some of their most competitive deals.
By Myra Butterworth, Personal Finance Correspondent
Last Updated: 6:00PM BST 09 Oct 2008
Major mortgage lenders fail to pass on rate cut
Nationwide said it would not be passing on the 0.5 pc point drop in rates Photo: JUSTIN LEIGHTON
Abbey announced it was increasing all its tracker home loan deals by 0.5 percentage points, meaning new customers will pay exactly the same as when the bank rate was at 5 per cent.
And along with Nationwide, it said it would not be passing on the half percentage point drop in rates to customers through its standard variable rate.
Experts suggested other lenders were likely to follow suit to prevent them becoming the best deals on the market and being inundated with applications.
The decisions by some of the country's biggest mortgage lenders comes on the bank of Gordon Brown's £500 billion bail-out of British banks.
No building societies at all have offered customers any reductions in their borrowing costs, according to Moneyfacts.
Gordon Brown will be angered by the refusal to cut rates as he has publicly called for consumers to benefit from reductions in the base rate.
Part of the reason for lender's reluctance to pass on the reduction is that three month Libor - the rate which lenders use to price many of their mortgages - remains high, reflecting the lack of willingness among banks to lend to one another. Three month Libor rose slightly yesterday to 6.28 per cent.
Andrew Montlake, of Cobalt Capital, a mortgage broker, said: "Many lenders are showing their true colours right now. The Government has effectively bailed out the banking sector but some of the banks, by withdrawing their more competitive products or upping their tracker rates, are refusing to bail out existing homeowners and first-time buyers.
"For certain lenders, profits are clearly more important than the man on the street."
The rate reduction is good news for those currently on base-rate trackers who will see an immediate reduction in their monthly mortgage payments.
But it is not such good news for those coming up to remortgage who are considering a tracker as more lenders are expected to raise rates, according to mortgage brokers.
Melanie Bien, of mortgage brokers Savills Private Finance, said: "Since the rate cut, trackers are looking extremely competitive and lenders don't need or want to chase market share, preferring to improve margins instead.
"The rate reduction will give them the opportunity to increase margins further, which is likely to happen in coming days."
Lenders that announced they would be passing on the interest rate cut to borrowers, included Lloyds TSB, Halifax, The Woolwich and Royal Bank of Scotland.
Lloyds TSB and Halifax have promised borrowers that their standard variable rates will never be more than two percentage points above the Bank of England base rate.
