Abbey borrowers will not see the full benefit

Not all borrowers with variable rate mortgages will receive the full benefit of yesterday's surprise quarter point interest rate cut.

While Nationwide is cutting its main mortgage rate by 0.25 of a point, Abbey National has decided not to pass on all of the reduction to 500,000 borrowers tied into its old standard variable mortgage rate.

For lenders whose mortgage rates have been reduced by the full 0.25 of a point, monthly payments of someone with a £50,000 interest-only mortgage will be cut by £10.40.

Abbey National is reducing its old standard variable rate by 0.1 of a point, from 6.75% to 6.65%, which means a £50,000 borrower will pay about £4 a month less.

The bank said it was not passing on the full base rate cut because it wanted to protect long-suffering savers, who outnumber borrowers seven to one and who have seen their returns slashed in recent months.

Pointing out that mortgage rates are already at their lowest for 30 years, retail marketing director Janet Connor said: "This is the fifth base rate cut so far this year and homeowners are enjoying the benefits.

"The decision to pass on less than the base decrease reflects the fact that borrowers have benefited from a reduction of 1% over recent months, knocking £83 per month off a typical £100,000 mortgage."

Abbey has 1.5m mortgages in force, some 1m of which are not tied in to the old standard variable rate. Several hundred thousand of its customers have tracker deals which automatically follow the Bank of England base rate and will therefore benefit from the full 0.25 reduction, while the remainder have fixed rate loans and will see no change in what they pay.

Halifax, Britain's largest lender, with 2.5m borrowers, has yet to respond to the rate cut, but earlier this month it indicated it would pass on any future cut in full to its standard variable rate borrowers.

Nationwide is cutting its base mortgage rate, paid by 590,000 borrowers,f by 0.25 to 5.49% - its lowest main mortgage rate since 1956. Its standard variable rate, to which more than 200,000 borrowers are tied in some way, is being cut by 0.25 to 5.99%. The cut will mean a £10.42 a month saving for a borrower with a £50,000 interest-only mortgage.

Other lenders passing on the full rate cut to borrowers include First Direct, HSBC, Virgin One and Egg.

David Bitner, mortgage technical manager at the MarketPlace at Bradford & Bingley, predicted that most lenders would pass on the reduction.