Money News

Lenders fail to pass on rate cuts to borrowers

By Martin Fagan - news@consumerchoices.co.uk

Cuts to the Bank of England base rate were unmatched by 95% of mortgage providers, says Which? Money.

Eighty-six out of 91 mortgage lenders failed to fully pass cuts in the base interest rate on to their Standard Variable Rate (SVR) mortgage customers, according to new research by Which? Money.

Since the base rate hit an all time low of 0.5% in March 2009, more than a fifth of lenders have increased their SVR, said Which?

Cheltenham & Gloucester and Lloyds TSB Scotland were the only lenders part of the four biggest banking groups to pass on the full cut.

KRBS (formally Kent Reliance Building Society) had the highest SVR on the market at 6.08% - more than 12 times the base rate - and the five other direct lenders with the highest SVRs were also all building societies, said Which?

“Millions of people are on variable rate mortgage deals and, for many, a rate hike could mean they’re facing real financial difficulties,” said Peter Vicary-Smith chief executive at Which?

“Banks have enjoyed increased margins on mortgages for the last few years and when the base rate rises again, few lenders will be able to justify passing the full amount onto their SVR customers.”

The average SVR is now 3.48% above the base rate, compared with 1.95% in September 2008 when the Bank of England base rate was 5%.

However, Michael Coogan, director general of the Council of Mortgage Lenders (CML), said that since the onset of the financial crisis, firms have been operating in lending and funding markets that have changed dramatically.

“The Bank of England base rate is not a proxy for the funding costs for lenders,” said Coogan.

“Lending rates are fundamentally driven by the cost of funds, not the base rate, although the two were more closely correlated before 2008. But this apparent historical relationship has been blown apart by the move to an unprecedented low base rate since March 2009.”