Banks pushed to cut mortgage rates

Wednesday, 03 December 2008 11:00

High street banks are being urged to cut their mortgage rates if the Bank of England cuts interest rates tomorrow.

An interest rate cut as high as one per cent is expected - taking base rate to two per cent or the lowest since 1939.

"Banks will be under pressure to pass on the full cut," said Andrew Montlake, partner at independent mortgage broker, Cobalt Capital.

"Some will fight but there will be pressure from the government, the press and borrowers, which is right."

He explained those mortgage lenders controlled by the government would cut their rates, but others might use the rate cut to bolster their profit margins, to make up recent losses.

He added some banks may be tempted to wait until the Christmas break before making any decision.

Consumer watchdog Which? is also calling on banks to pass on interest rate cuts, stating the previous reason that their hands were tied as inter-bank rates - as measured on the London Interbank Offered Rate (Libor) - were high is now less of a factor.

Peter Vicary-Smith, Which? chief executive, said: "Banks have been having their cake and eating it for too long.

"The industry claim that their hands have been tied when it comes to passing on rates to SVR mortgage customers because they borrow at the Libor rate rather than the base rate.

"However, since November 5th, Libor rates have fallen by significantly more than the base rate. So, what are they waiting for?"

Since November 5th, Libor has dropped from 5.68 per cent to 3.91 per cent on December 1st.

"Banks have been benefiting from this Libor cut and to date, none of them has passed on the full cut," Mr Vicary-Smith said.

"If the interest rate is cut again on December 4th, it will be even more important for banks to cut their rates and give consumers the break they deserve."

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