Interest rates: Lloyds TSB and HSBC pass on cut to customers

Published on Thursday 4 December 2008 12:23

LLOYDS TSB and HSBC today said they would be passing on the 1% interest rate cut to their variable rate customers in full.

HSBC announced its decision within minutes of the rate cut, while Lloyds TSB, which also lends under the Cheltenham & Gloucester brand, had already said it would be passing on the reduction to its standard variable rate (SVR) customers.

But other lenders were slower to respond, with most of the major players saying their SVR was currently under review.

HSBC is reducing its SVR to 4.44%, while Lloyds TSB, which pledges that its SVR will never be more than 2% above the base rate, will have a new rate of 4% from January 1.

The group is also relaunching its fixed-rate mortgages tomorrow, offering a two-year fixed rate deal of 3.89% for people borrowing up to 75% of their home's value, who pay a 2.5% arrangement fee.

It withdrew its tracker range yesterday for repricing and will be relaunching them early next week.

Despite the early cuts, the majority of lenders are not expected to pass on today's base rate reduction in full to their SVR customers.

Three-quarters of groups with an SVR failed to cut their rates by the full 1.5% following last month's cut, with Barclays' lending arm, the Woolwich, not reducing its SVR at all.

If lenders do pass on the 1% cut in full, it would save borrowers with a 150,000 mortgage around 85 a month, based on a new rate of 4%.

People with a 250,000 mortgage will be around 142 a month better off, saving them more than 1,700 during the course of a year.

The UK's 4.7 million customers with discount and tracker mortgages, whose rates should automatically move up and down in line with the base rate, will also not all benefit from today's cut.

It is thought around 600,000 people have trackers with lenders that impose a collar, meaning that when base rates fall below a certain level, they no longer have to pass on the reduction.

Nationwide has a collar which kicks in at 2.75%, meaning its tracker customers will benefit from only 0.25% of today's cut, while the Skipton and Yorkshire Building Societies have one of 3%, meaning borrowers will not see any reduction.

But more than half a million Halifax tracker customers received some good news today when the group said it would not exercise an option in the mortgage's terms and conditions allowing it not to pass on all or any reduction once the base rate fell below 3%.

The move follows speculation that City watchdog the Financial Services Authority could force the group to pass on the cut as borrowers had not been made aware of the clause when they took out their mortgage.

The group said it had been its own decision to pass on all future interest rate reductions to existing tracker customers, adding that it had consulted with the FSA.

Ray Boulger, senior technical manager at John Charcol, said: "While borrowers may have received the news of another significant rate cut with hope, I expect very few lenders to pass on the whole of this month's cut, with most reducing their SVRs by between just 0.25% and 0.5%.

"Some who were coerced by the Government into passing on all of last month's 1.5% cut against their better commercial judgment may choose to be parsimonious this time, unless there is further Government browbeating."

The Council of Mortgage Lenders welcomed the cut, but warned that it may not be reflected "universally" in lower mortgage rates.

The group said: "Where lenders feel they can reduce mortgage rates, they will. But their own cost of funds varies.

"For the specialist non-deposit taker lenders, funding remains both expensive and scarce.

"And deposit takers – banks and building societies – also need to weigh up the position of their savings customers, and the rates they need to keep and attract retail deposits in order to achieve the funds necessary to be able to lend at all."

Adrian Coles, director general of the Building Societies' Association, said: "Savers will be disappointed at today's news.

"Building societies which pass on both this base rate reduction and the last could halve the interest which they pay to their investors in a very short period of time.

"A large proportion of the funds invested in building societies are held by those over the age of 55. Building societies will wish to do what they can to protect pensioners from what will be, potentially, a very sharp reduction in their income."

The National Association of Estate Agents called on lenders to pass on the cut to borrowers.

Peter Bolton King, chief executive of the NAEA, said: "Low rates will increase confidence in the market but will not increase mortgage approvals.

"Bringing buoyancy back to the market lies not only with low interest rates but crucially also in new lending.

"Government and lenders must do more to encourage first-time buyers onto the property ladder in order to reverse the current downturn in the market."