Recently nationalised bank Northern Rock has yet to announce whether it is passing on last week’s interest rate cut to borrowers despite calls from the Prime Minister for lenders to reduce their rates.
The group said yesterday that its standard variable rate (SVR) ‘remained under review’ following Thursday’s quarter point reduction by the Bank of England’s Monetary Policy Committee.
The troubled lender, which was nationalised after running into problems as a result of the credit crunch, passed on only 0.1% of February’s rate cut and 0.15% of December’s.
The group said none of its new products was linked to its standard variable rate, adding that if it did decide to make a change it would not come into force for existing borrowers until the first of the month regardless of when it made the announcement.
Northern Rock’s admission that it had not yet reduced its SVR comes the day after Gordon Brown called on banks and building societies to pass on recent interest rate cuts to borrowers to help the mortgage market.
He is also due to meet representatives from the major banks today to discuss the current situation.
So far only a handful of lenders have said they will reduce their standard variable rate, including Halifax, Nationwide, Lloyds TSB’s lending arm Cheltenham & Gloucester and the Woolwich, which is part of Barclays.
Abbey, which has not yet said if it will be reducing its SVR, is expected to announce tomorrow that it will not be passing on the full rate cut to all of its new tracker customers.
It is thought that while new borrowers with a 20% deposit will see their tracker rate fall by 0.25% in line with the cut in base rates, those with only a 5% or 10% deposit will see the rate reduced by just 0.12%, increasing the group’s margin to 1.37% above base rate.
Around a fifth of lenders either failed to cut their rates following the two previous base rate reductions, or they did not pass on the full 0.25% cut.
But even if banks do heed Mr Brown’s calls to pass on rate cuts it is doubtful the move will do much to ease the problems the mortgage market is currently facing.
Less than a million homeowners are currently on their lenders’ SVRs, and those who are on them are typically near the end of their mortgage term and have only small amounts outstanding.
People on tracker rates automatically see their rate move up and down in line with the Bank of England base rate, while those on fixed rate loans are unaffected by changes to the official cost of borrowing.
Sue Anderson, spokeswoman for the Council of Mortgage Lenders, said: ‘The number of people affected by variable rates will be a minority. The real issue is new product pricing.’
She said there were still two issues facing the mortgage market, with the price of funds that lenders borrow remaining high, while the volume of funds available remains low.
She said: ‘Lenders’ own cost of funds are not linked to the base and [inter-bank lending rate] Libor has not come down significantly since the cut.
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