Banks Under Fire For Rate Cut Delays
Last month the Bank of England decided to cut the base interest rate by a quarter of a percent to 5.5%. It came as a great relief to businesses and individuals alike, with credit card holders and mortgage customers hoping and believing that they would benefit from the cut in the rate. Some banks and building societies passed on the rate cut to their mortgage customers in full - such as Halifax and Nationwide. However, many did not.
On 8 January Gordon Brown and Alistair Darling encouraged mortgage lenders to pass on the rate cuts to homeowners. It emerged that almost one in five mortgage lenders had so far failed to pass on the rate cut, and Prime Minister Brown said that the banks had a duty to do so.
By their inaction the banks are leaving hundreds of thousands of borrowers paying more than they should be doing after the 0.25% cut.
Comments by Brown and Darling came as the Bank of England's Monetary Policy Committee sat down to discuss where they would set interest rates for the coming month, with some experts anticipating the possibility of another quarter point cut.
Some lenders remained defiant, however, saying that they were under no obligation to pass on any rate cut.
Chancellor Darling has already written to energy companies this week, asking them to review steep rises in electricity and gas bills as there have been concerns of profiteering by some providers. Some providers pointed out that a lot of the increase in energy bills has been due to green taxes and higher business rates.
Darling and Brown made their views known at the Prime Minister's first monthly news conference of the year, the PM saying: "I think where interest rate cuts happen the building societies and banks have a duty to take that into account."
Some mortgage lenders reacted angrily to the comments. A spokesman for the Council of Mortgage Lenders said: "It's a misconception to see a link between the base rate and the mortgage rates."
It becomes an interesting view as it's difficult to recall a bank, building society or mortgage lender who didn't put their mortgage interest rates up when the Bank's rate was going up between August 2006 and July 2007. In addition, when rates go up, banks react quickly by raising their rates within days. When rates come down, there appears to be some sort of administrative lag before any reduction is applied to mortgage rates.
There are 14 lenders - that's around 20% - who have not cut their standard variable rate for mortgages since the Bank's rate reduction in December.
Mr Darling said: "I would hope that if interest rates continued to come down then the benefit of that reduction would be passed on. Just as people recognise that when interest rates go up their mortgage rate goes up, they expect that when rates go down the lenders will reduce the rates so they can benefit. It's part of the deal."
Banks which have not passed on the full rate cut to borrowers include Alliance and Leicester, Egg, Northern Rock and Skipton building society.
If you are unhappy with your bank and feel there could be a better deal for you, then get your Free Mortgage Quote right here at the MoneyOutlet. Search the "Whole of Market" with a certified mortgage broker to ensure you find the best deal to suit your needs.
Published on January 11, 2008
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