More lenders expected to cut mortgage rates soon

‘profiteering’ charge as britain’s biggest bank threatens not to pass on reduction

By Nicky Burridge

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More banks and building societies are expected to reduce mortgage rates this month than did in October if the cost of borrowing is cut again on Thursday, commentators said yesterday.

But many of these lenders will be groups who failed to pass on reductions following last month’s cut.

And the boss of Britain’s biggest bank was yesterday condemned for indicating he may not pass on the base rate cut to his customers.

The Bank of England monetary policy committee is set to reduce the base rate by at least 0.5% this week, with some predicting a 1% cut.

But only 54 out of the 96 lenders that have a standard variable rate (SVR) mortgage have so far passed on October’s 0.5% reduction – with many of these failing to pass on the full cut.

Their problem is that their own funding costs are based on the inter-bank lending rate Libor, not the base rate. The three-month Libor rate stood at 6.27% – or 1.27% above the bank’s base rate – on October 8 when interest rates were last reduced.

But it took until yesterday for the rate to fall nearly the full 0.5% to stand at 5.78% or 1.28% above the base rate.

Lloyds TSB, Halifax, Woolwich and Royal Bank of Scotland were the only lenders to announce they were reducing their SVR by the full 0.5% on the day the cut was announced in October.

Ray Boulger, of mortgage experts John Charcol, said given three of these lenders recently received UK Government support, there was likely to be a similar pattern if a cut is made this week.

Some banks and building societies set a limit below which they will not pass on any base rate reductions.

Nationwide stops reducing rates for its tracker customers if the base rate falls below 2.75%, while Halifax states it has the option to change its tracker margins if the cost of borrowing drops below 3%.

HSBC was yesterday accused of “profiteering” after a senior executive signalled it may not pass on the base rate cuts to customers.

David Hodgkinson, chief operating officer at Britain’s biggest bank, said borrowers faced “stickiness” even if the Bank of England lowered rates on Thursday.

Mr Hodgkinson – part of the business delegation accompanying Gordon Brown on his tour of the Gulf – said credit had been “mispriced“ over recent years.

“Clearly if interest rates are down significantly the rates for borrowing will go down. But I am not going to say it is absolutely linear, because it depends on the particular (situation) and the risk.”

Asked if that meant there would be “stickiness” in rates, he replied: “Yes.”

Shadow chancellor George Osborne said: “It’s all very well Gordon Brown exhorting the banks to pass on the rate cut but he hasn’t even managed to persuade members of the entourage accompanying him on his trip.”

Lib Dem Treasury spokes-man Vince Cable said: “When the whole banking industry owes so much to taxpayers for their survival, any bank will find itself on very thin ice if it is found to be unfairly profiteering from its customers.”