Christmas Misers Hold Back On Rate Cut
Not all lenders have bothered to pass on the latest interest rate cut from the Bank of England. The result is that homebuyers are paying around £10 million a month more than they would do if the quarter percent cut had been passed on across the board.
Many lenders have not cut their standard variable rate (SVR) by the 0.25% that the Bank of England took off the base rate at the beginning of December. Some of the guilty parties are Alliance & Leicester, Bristol & West, HSBC, Northern Rock, Skipton Building Society and Standard Life. These all claim that the SVRs are under review, but in the mean time they're playing the part of Scrooge in the festive season as they tried to load their coffers with as much cash as they can.
Many banks are trying to head off the effects of their own imprudent buying of financial packages connected with the US sub-prime mortgages that have since collapsed and left many of them under-funded. Many independent financial advisors say the banks are to blame for their own misfortune and should not recoup their losses at the expense of the UK homebuyer.
Melanie Bien of mortgage broker Savills Private Finance, said: "Many homebuyers will be left disappointed this Christmas because they will not benefit from the Bank of England rate cut and find some extra money in their pocket to help them get through this expensive time of year. Lenders are looking to retrieve some profit margin so they hit their end of year targets and are reluctant to pass on the full benefit of the rate reduction to borrowers."
Two of the biggest lenders did respond immediately. Halifax cut its rate straight away from 7.75% to 7.5%, and Nationwide cut its SVR from 7.24% to 6.99%.
Around half of all lenders have not cut their rate by the 0.25% bank rate reduction. Calculations suggest that around £100 billion of mortgage debt, subject to 0.25% more interest than required meaning a total of £250 million over a year, or around £10 million a month, is being paid by homeowners.
Some lenders may reluctantly trim their SVRs by 0.2% or 0.1% in the next few weeks, and some may blur a cut to be close to the next rate cut - should it come in January or February.
Borrowers on SVRs could make significant savings if they transferred to other deals, such as fixed rates, or discounts, or capped mortgages. However, fixed rates work best when the base rate is going up, and the likelihood is that the base rate will fall further in 2008. A rate linked to the Bank's base rate may deliver the best deal for the next couple of years.
In October the percentage of fixed rate loans taken out fell from 72% to 68% as borrowers began to look at variable rate mortgages. It is a trend that the Council of Mortgage Lenders expect to continue.
A tracker mortgage is linked to the Bank of England base rate and moves up or down with Bank rate.
SVRs are best avoided.
Published on December 19, 2007
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