Banks shamed into cutting rates
Critical media attention and government intervention has led to several big mortgage lenders cutting their standard variable rates in-line with the 1.5% Bank of England base rate cut.
Although only around 50% of lenders passed on October's 50 basis point cut, with many introducing smaller reductions, stern words from Gordon Brown and chancellor Alistair Darling seem to have shamed some banks into passing on the full 1.5% saving.
On Friday, Darling met with the heads of Britain’s biggest banks to put pressure on them to lower SVRs by the full 150 basis points.
Angela Knight, chief executive of the British Bankers' Association, says: "We know that many people are concerned about making ends meet in these difficult times and although the interest rate cuts will be welcomed by borrowers and home owners the banks have to balance the borrowing rates against offering competitive rates for savers."
Although nationalised lender Northern Rock has now cut its SVR by 1.5%, Bradford & Bingley (which is also under public ownership) has so far failed to do so.
For the full list of which lenders have passed on rates, click here.
Every mortgage lender has a standard variable rate of interest, or SVR, on which it bases all its mortgage deals, including fixed and discounted rate and tracker mortgages. When special deals come to an end, the terms of the deal usually state that the borrower has to pay the lender’s SVR for a period of time or pay redemption penalties. The lender’s SVR is, in turn, based on the Bank of England’s base lending rate decided by the Bank’s Monetary Policy Committee (MPC). Every time the MPC raises its rate, mortgage lenders generally increase their SVR by the same amount but when the MPC lowers its rate, lenders are often slow to pass this on or don’t pass on the full cut to borrowers.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.