Northern Rock standard variable rate: Highest on market
Tuesday, 14 Oct 2008 11:00
Northern Rock mortgage rate not cut full 0.5%
Government-owned Northern Rock has failed to pass on the full 0.5 per cent interest rate cut last week – giving it one of the highest standard variable rates (SVRs) on the market.
With the government buying major chunks of Royal Bank of Scotland and Lloyds TSB/HBOS, the future for British mortgage borrowers seems murky – as the sensible banking urged by the Treasury may respond in higher interest rates.
Northern Rock has just cut 0.15 per cent from its SVR - leaving at 7.34 per cent. Only lenders that have not announced their decision are higher.
"Many Northern Rock customers would have hoped for some relief in their repayments following the base rate cut, so will be unhappy that the government-backed bank has not set an example and passed on the full 0.50 per cent cut," said Michelle Slade, analyst at Moneyfacts.co.uk.
Many Northern Rock customers who find themselves on the bank's SVR are there as they have been unable to remortgage elsewhere – as the lender encourages them to do – as they often have a higher risk level or are at a great chance of defaulting.
Other disappointed lenders are those on tracker mortgages at Abbey, NatWest and Royal Bank of Scotland (RBS) - where rates were increased rates by 0.50 per cent, effectively wiping out the base rate cut.
Ms Slade explained banks are now taking a bigger margin on their mortgages and so are not pushing down rates.
“Lenders are taking nearly three times more margin for risk than they were a year ago. Today the average two-year tracker rate is 1.85 per cent above base, a year ago it was 0.68 per cent.
"Hopefully as more lenders announce their revised rates this will be reduced, but not if more lenders follow the example set by Abbey, NatWest and RBS."
She added: "The base rate cut and bank rescue is intended to free up the markets. However, it may be a couple of weeks before lenders regain and real appetite to lend."
Andrew Hagger of moneynet.co.uk explained the move was unpleasant but unsurprising.
"This move seems to have surprised some people, however, when you realise that the strategy of the nationalised Northern Rock is to reduce its mortgage book, it is unpalatable moves such as this that may be sufficient to encourage a few more borrowers to look elsewhere for a mortgage.
"Unfortunately those with a loan to value ratio of 90 per cent plus are unlikely to find a better deal elsewhere at present and will have no option but to carry on sitting on the books of Northern Rock and paying a high price just to keep a roof over their heads."
Your views
Simon from Wigan: I can't believe taxpayers' money has bailed them out and a practically nationalised bank isn't passing on the interest rate cuts, I got a letter saying its gone down by 0.15%. It's a disgrace and now the interest rate has been dropped a further 1.5% I bet this won't be passed on and I am on track for my home to be repossessed as I can't move elsewhere.
Paula from Kent : How can they not pass on the rate cuts when every tax payer bailed them out. Its pointless the Bank of England cutting rates just to help the banks profits, they should have control on the variable mortgage rate and insist the bank's pass on the cuts as they have a big enough margin on top of their lending.
Hem from the South East: I am one of Northern Rock's captive customers with 90% LTV and an unsecured loan on top of that and am finding it very hard to move. My current deal with Northern Rock stands 7.48% with the England base rate at 3%. That is about 250% profiteering from customers who are on the borderline of repossessions. I find this to be very unethical and immoral; especially given the fact that we (the tax payers) bailed Northern Rock out in the first place, only to be burgled by them later on.
Steele from Lincoln: Northern Rock needs to pass on the full rate cut. We are stuck with Northern Rock, as could not remorgage elsewhere. We were on 4.65 per cent and this has jumped to 7.49 per cent. Pass rate cut on or we don't pay; simmple as that. Who will lose? Not us.