Base Rate Cut not passed on by three quarters of lenders.

Ian_Griffiths_Halifax

From Mortgage Introducer - Trade Magazine



Base rate cut not passed on by three quarter of lenders

21 October, 2008

"Two weeks after the Monetary Policy Committee announced a shock 0.5 percent cut to the base rate in unison with key central banks around the globe, more than three quarters of all UK lenders have yet to pass on this reduction to their ever growing number of standard variable rate mortgage customers, says Darren Cook, mortgage expert at Moneyfacts.co.uk



"With mortgage approvals falling to rock bottom levels and house values continuing to fall to unseen troughs, it is unlikely that mortgage lenders will soon regain their appetite to lend at reasonable levels in the short term. Unfortunately, within this increasing turmoil, the majority of customers currently have no alternative but to switch to their lender's standard variable rate (SVR)
"Some lenders have announced a reduction in their SVR and have reduced their rate by the full amount. However, a growing number have chosen not to do this and only passed on a proportion of the cut or none at all.
"At the crest of the mortgage market wave, it was likely that only households with a small outstanding mortgage balance, those negotiating their next new deal or those that just simply fell through the advisory net would have seen themselves paying a SVR. A mortgage that was previously known as only a revert rate, due to circumstances, has become a prime product that could be adversely priced at will.
"Historically, lenders have toed the line in passing on favourable changes to their SVR, but as there have been few base rate changes of late, lenders have had little opportunity to reprice their SVRs to incorporate an increased probability of default, elevated risk and the higher cost of interbank lending.
"With more base rate cuts on the horizon, which in part are intended to reduce the burden of household finances, we could find ourselves in situation where future MPC decisions on a rate cut will have little or no bearing on the majority of current household's mortgage outgoings and could ultimately result in an increase in repossessions."
Highest SVRs (No = unchanged since last base rate cut):
Kent Reliance BS - 7.59% - No
PI - 7.50% - No The Mortgage Business - 7.44% - No
OAS_AD('Middle1');

Catholic BS - 7.40% - No
Darlington BS - 7.37% - No
Source: Moneyfacts.co.uk 21.10.08
And some of those who have cut by less than 0.50% (first figure is cut)
HSBC - 0.00% - 6.25%
Northern Rock - 0.15% - 7.34%
Beverley BS - 0.20% - 6.20%
Nationwide BS - 0.30% - 6.19% Source: Moneyfacts.co.uk 21.10.08

coincounter

It is a very lame state of affairs for those of us stuck following SVRs. This link seems to be up to date with any announcements that have been made, some (like A&L) even before they become official:

http://www.thisismoney.co.uk/mortgages/mortgages/article.html?in_article_id=454127&in_page_id=58

Ian_Griffiths_Halifax

Alliance & Leicester cuts SVR

21 October, 2008

Alliance & Leicester today announces a reduction in its Standard Variable Rate (SVR) from 7.19% to 6.94%, a reduction of 0.25%. The new rate will come into effect on Thursday 30 October.


Existing Alliance & Leicester customers on SVR or SVR related discounted products will see the change in their mortgage rate from Sunday 2 November.

The rate on Alliance & Leicester Base Rate Tracker products for new customers reduced by 0.50% on Monday 13 October in line with the reduction of the Bank of England base rate. Existing customers with a Base Rate Tracker mortgage will see their rate reduced by 0.50% from Saturday 1 November

magburner

Why should lenders pass it all on when LIBOR has only moved by a little under 20 bps? If it goes down again in Novemeber I wouldn't bee surprised if a few more of them don't pass the full amount on.

Passing it on is only weakening the profitability for our banks which at this time they can ill afford!

faisalpak

magburner wrote: »

Passing it on is only weakening the profitability for our banks which at this time they can ill afford!

Rubbish !! Just yesterday Lloyds have announced that every employee will get their regular bonus as "they have worked fantastically over last year and that there is no reason not to give it".

http://blogs.news.com.au/news/splat/index.php/news/comments/lloyds_boss_think_staff_deserve_big_bonuses_this_year_who_else_deserves_a_b/

Ian_Griffiths_Halifax

From Mortgage Strategy - Industry Magazine

Consumer group Which? is calling on the government and the banks to start bailing out consumers as it launches a banking reform campaign.

Which? interviewed 1001 adults during October 16 and 17 in a bid to gauge attitudes towards the current banking system. It found that 81% of those polled believe an overhaul of the banking system is needed to avert another financial crisis.


The consumer group also found that 67% of respondents blame banks for the crisis, with nearly 73% of those interviewed feeling that they have been exposed to irresponsible lending.

Which? has written to chancellor Alistair Darling calling on him to ensure that government-backed lenders who have received cash injections at a cost to the taxpayer immediately pass on base rate cuts.

The consumer group is calling on consumers to follow its lead and write to Darling to bail out consumers with similar extreme measures it has adopted for failing banks. It is also campaigning for an independent review of retail banking.

Peter Vicary-Smith, chief executive of Which?, says: “The banks have had their bailout, now it’s time for them to deal sympathetically and fairly with the plight of ordinary consumers. Many consumers are anxious about their savings or struggling with their mortgage, and it is the government’s duty as a major shareholder to ensure this happens.
“The government cannot afford to pass up this unique opportunity to make long-term, consumer-focussed changes to the banking industry, and in the short-term we’re after a fairer deal for consumers. We want to see an independent review leading to an overhaul of an industry that is characterised by weak competition, irresponsible behaviour and a terrible record for treating customers properly.”

going2die_rich

It shouldn't do though. It is meant to stimulate new borrowing, not existing. They should only have lower new borrowing rates.

People already with mortgages are the fishes already caught on the hook, they dont need to waste their time worrying about them. They need to attract the new fish

MarkyMarkD

Which? do write some rubbish.

The government capital funding doesn't do anything at all to address the banks' funding issues. They are two different problems.

Anyone who uses the expression "pass on" rate cuts is stupid and wrong. Banks do not borrow from the Bank of England, or anyone else, at Bank of England base rate. They borrow from their savers at savings rates - which, mostly, haven't fallen because banks cannot afford to lose their savings balances - or from other banks at LIBOR-linked rates - and LIBOR has hardly fallen, and certainly not by 50 basis points.

Many lenders are stuck with borrowers paying rates like BBR+0.75% or similar, which is vastly below the rate at which they can borrow the funds. Not "passing on" the rate cut is merely helping the banks to recoup the losses they've already made - and are continuing to make - on such accounts.

Some lifetime trackers may never make their lenders a penny in profit ever again. Some of them have rates hardly above BBR - which means that they are up to 1.5% under LIBOR.

FelineFan

Scottish Widows Bank (part of Lloyds) have yet to pass on any rate cut! :mad:

MarkyMarkD

Stop saying "pass on". Banks don't borrow from anyone at BoE base rate. It's irrelevant.

Banks are paying savers the same rates they were before the BoE rate cut. They are paying other banks virtually the same LIBOR rates they were before the BoE rate cut. Their costs haven't fallen - so there's no reason why mortgage rates should fall.

Gorgeous_George

Maybe they would have INCREASED rates had the MPC not reduced BofE base rates.

GG