Mortgage lenders save up the good news for borrowers

Homeowners should delay any celebration of yesterday's cut in official interest rates to 5.25 per cent as banks and building societies may be slow to ease mortgage rates.


Lenders will cite the woes of savers, who are already being offered rock-bottom rates of interest.


Mortgage rates are at 33-year lows and much of the lenders' profitability rests on the difference between the return to savers and the levy on borrowers.


None of the big mortgage lenders announced cuts in rates yesterday. Some admitted that they were concerned about the impact on savers, who tend to be more loyal than borrowers.


Ambrose McGinn, director of retail products at Abbey National, said that the bank had seven times more savers than borrowers, and therefore needed to give careful consideration to the savings rates it offers.


The problem also afflicts building societies. 'Savers have seen their rates reduced as a result of recent base rate reductions. We think it is time for the market to better support the needs of savers,' said Christopher Rodrigues, chief executive of Bradford & Bingley building society.


This is despite the flurry of new savings products such as Prudential's Egg, which while running up losses for the insurance company offers savers better rates than the norm.


Even with tighter margins, the banks and building societies will be making profits.


Some City analysts gave warning that it might prove dangerous for the banks and building societies to use savers as an excuse for leaving mortgage rates unchanged. A cut in official rates means that the banks will be able to borrow money more cheaply on the wholesale market, which should increase the profit on their mortgage business.


Mark Thomas, banking analyst at Credit Lyonnais Securities, said: 'The banks can borrow more cheaply. Why is the UK banking sector making such excellent returns? Because it is taking advantage of its customers.'


One of the newer entrants, Virgin Direct, did cut rates yesterday. The borrowing rate fell to 6.45 per cent from 6.7 per cent. Its savings rate remains unchanged at 5.5 per cent.