Mortgage lenders fail to pass on interest rate cuts

Thursday, 20 August 2009 12:00

Mortgage lenders are failing to pass on the sharp falls in the base rate to new borrowers, research suggests.

Figures from moneysupermarket.com show the average mortgage rate has fallen 1.3 per cent over the past 12 months to 5.12 per cent, yet the Bank of England base rate fell 4.5 per cent to 0.5 per cent from a year ago.

There are significant differences between lenders, the research showed.

State-owned Northern Rock cut its average mortgage rate by just 0.27 per cent, while Santander-owned Abbey slashed rates by 2.3 per cent.

The Royal Bank of Scotland, which is 70 per cent owned by the taxpayer, reduced its mortgages by just 1.09 per cent, while Lloyds Banking Group, which is 43 per cent government-owned, also fared badly.

Lloyds TSB mortgages fell by 0.73 per cent, while Cheltenham & Gloucester cut its average rate by 0.71 per cent.

Hannah Skenfield, mortgage channel manager at moneysupermarket.com, said: "The Bank of England base rate has dropped by 4.5 per cent since August last year, however, despite this low rate environment, there is a significant disparity in the amount of this saving being passed on to mortgage borrowers by the main UK lenders."

The variance in average rates offered this year widening to 2.5 per cent, compared with just 0.93 per cent in 2008, highlighting the importance of shopping around for the best deal, moneysupermarket.com said.

Some lenders have made more effort to pass on savings to new borrowers, the study found - first direct cut the average rate to 3.92 per cent, a reduction of 2.21 per cent, while HSBC cut rates by 1.94 per cent to 4.33 per cent.

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