75% of lenders fail to pass on interest rate cut

Three-quarters of mortgage lenders have so far failed to pass on the recent cut in interest rates to their customers, research showed today.

Financial information group Moneyfacts said just 30 lenders had reduced their mortgage rates a week after the Bank of England's monetary policy committee announced it was cutting the base rate by 0.25% to 4.5%.

It said around three-quarters of the UK's 120 lenders had still to make a decision on whether to reduce mortgage costs for customers, including a number of major players such as Barclays, the Woolwich, Royal Bank of Scotland, NatWest and Bradford & Bingley.

But the group added that so far all but one lender had reduced their rates by the full 0.25%, which showed how "fiercely competitive" the mortgage market was.

Darren Cook, Moneyfacts' head of mortgages, said this was because lenders didn't want "to risk upsetting their customer base".

Nationwide building society today became the first player to break this trend by announcing that while it would be reducing its tracker mortgage by the full quarter of a percent, it was only cutting its base mortgage rate by 0.1%.

The society defended its decision saying its aim was to have a base mortgage rate that was at least 0.5% lower than the standard variable rates offered by its main competitors Halifax, Abbey and the Lloyds TSB group.

Nationwide said its new rate of 5.89% was 0.6% below that offered by the other three lenders.

The reduction in rates will come as a relief to homeowners following five hikes in the cost of borrowing since November 2003.

Someone with an average £80,000 mortgage will see £12 knocked off their monthly repayments if their lender passes on the rate cut in full, based on a new rate of 6.5%, although they will still be paying nearly £50 a month more than when interest rates dipped to their lowest level of 3.5%.

People with a £150,000 mortgage will see their monthly repayments fall by nearly £25 following last week's cut, while those who have a £200,000 loan will be more than £30 a month better off.

Moneyfacts said banks and building societies had also been slow to announce what the impact of the cut would be on their savings rates, with just a quarter of 100 savings institutions changing their rates. It said the majority had cut their rates by the full 0.25%, with Anglo Irish the only group to reduce its rates by less than this at 0.2%.

At the other end of the scale it said Abbey had cut rates by 0.5% on its one-year variable bond and on the default rate paid to customers who did not keep to the terms and conditions of their accounts, while Derbyshire Building Society had cut its rates by 0.6%.

"We are still waiting for the majority of institutions to make their decisions following the MPC rate cut last week," said Rachel Thrussell, head of savings at Moneyfacts.

"Historically this is the pattern we expected to see, with the high street banks reacting one to two weeks after the decision and many of the mutuals making their changes around the first of the following month, once they have obtained board approval.

"With regards to those cutting rates by more than the 0.25%, customers need to look at the rate they will now be offered and, if they feel they are not now receiving a competitive rate, they will find plenty of other institutions who will welcome their custom."