Mortgage lenders warn no cut on SVRs

Thursday, 04 December 2008 03:00

High street lenders are being urged to cut their mortgage rates to customers, after the Bank of England cut.

Before the rate cut, Lloyds TSB promised to match the Bank of England cut its standard variable rate (SVR) and other banks backed by the government are expected to follow suit.

However, other lenders are not expected to cut SVRs quickly.

Adrian Coles, director-general of the Building Societies Association (BSA), said: "Not all mortgage borrowers will find today's fall mirrored by their lender - building societies have to balance the interests of borrowers and savers."

He added some mortgages also have 'collars' below which the rate may not fall.

The Council of Mortgage Lenders has also echoed this statement - getting in excuses early - stating the rate cut "cannot be reflected universally in lower mortgage rates".

"The practicalities are complex, and lenders are trying to achieve a range of potentially conflicting objectives at the same time," said CML director general Michael Coogan.

"As we have said before, not all lenders are the same. It is not realistic to expect them all to react in the same way to the rate cut - although where they believe they can cut mortgage rates, they will."

Ben Thompson, mortgages director at Legal & General, said banks are having to look after savers to maintain funds - and that is why rates will not come down.

"Some lenders will reduce their SVRs by the full amount, but unfortunately, the challenge of building their savings base may limit the extent to which lenders will directly pass on the rate cut to all borrowers," he said.

"Lenders need savers to function properly and they won't attract savers with paltry rates."

Andrew Montlake, at mortgage broker Cobalt Capital, said: "Today's cut will be a tonic to thousands of people on variable and tracker mortgages, presuming, of course, there's no collar in the small print.

"The pressure is now on the banks to pass on this cut in full, especially those banks that have had access to public funds."

Many lenders have still pushed through the interest rate cut of 1.5 per cent from November.

Just 11 providers passed on the full 1.5 per cent cut, and nine providers passed on less than 0.5 per cent on SVRs.

SVRs currently range from 4.36 per cent to 7.24 per cent - with the average at 5.73 per cent, according to figures from uSwitch.com.

Following the total 2.5 per cent base rate decrease since October, the average tracker mortgage customer will be £2,622 a year better off.

Sean Gardner, director of MoneyExpert.com, said: "With a base rate of just two per cent borrowing money should be cheap as chips - the problem for consumers will be finding a lender willing to part with some cash in the first place.

"Otherwise the base rate cut won't make a lot of difference to real people."

Borrowers that do see a one per cent drop should see a £50 drop in repayments on the average £100,000 repayment mortgages, while a £200,000 mortgage should see repayments down by £100, according to Moneyfacts.co.uk.

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