Abbey won't pass on cuts

Abbey National this week warned many of its borrowers that they will not see their monthly mortgage bills fall much further, even if there are more cuts to the Bank of England base rate.

Britain's second-largest lender says it will not be passing on the full benefit of the next bank base rate cut to half a million of its borrowers tied in to its old standard variable mortgage rate (SVR).

If the Bank of England does cut interest rates by a further 0.25% in the next few months, Abbey said it would only cut its old SVR (currently 6.75%) by 0.1% or 0.15% in a bid to "protect" long-suffering savers, who have seen their returns slashed.

Abbey's decision could prove controversial. In 1999 Abbey, Halifax and other leading lenders were criticised for failing to pass on official interest rate cuts to mortgage-holders. The debate reached government level, with chancellor Gordon Brown himself reportedly concerned, and the row prompted the Treasury to launch an investigation into the mortgage industry.

"Abbey National's mortgage rates are at their lowest in over 30 years, and mortgage customers have continually reaped the benefits," says the bank. "However savers, who outnumber borrowers seven to one, have felt the impact of these cuts and we think it is time to protect them."

Halifax indicated it would not follow Abbey's lead and would pass on any future rate cut in full to its SVR borrowers.

Many mortgage-holders have special deals such as fixed rates and base rate trackers and will be unaffected.