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Banks refuse to cut rates
Jonathan Prynn, Consumer Affairs Editor3 Nov 2008
HOMEOWNERS were warned today that the expected cut in interest rates on Thursday will not be passed on to them in full.
David Hodgkinson, chief operating officer at HSBC, said there would be some “stickiness” in mortgage rates even if there is a big reduction in the Bank of England's base rate.
Economists expect the Bank to lower the rate by at least half a point to four per cent and there are hopes of an unprecedented full percentage point cut.
But Mr Hodgkinson, part of a business delegation accompanying Gordon Brown in the Gulf, said home loan rates were unlikely to fall in line in the short-term.
The reluctance of the banks and building societies to pass on the full benefit of Bank of England cuts will anger millions of ordinary borrowers struggling to make ends meet.
Liberal Democrat Treasury spokesman Vince Cable said it was “difficult to see the justification” for the banks not passing on the cut, adding: “Banks are only too happy to increase the cost of lending when interest rates go up. For customers to get a fair deal, this needs to be a two-way street. When the whole banking industry owes so much to taxpayers for their very survival, any bank will find itself on very thin ice if it is found to be unfairly profiteering from its customers.
“As the credit crunch continues to keep millions of customers and small businesses in a stranglehold, borrowers need interest rate cuts now.”
It comes on the day that Lloyds TSB and HBOS confirmed that they will accept up to £17 billion of government support when they merge.
Increasing numbers of homeowners are now having to accept their lenders' “standard variable rate” because they have not been able to secure new fixed or tracker deals.
Some industry estimates suggest that 30 per cent of all home loans are now on SVRs, which are set at the discretion of the lender and are typically far higher than the best deals.
One mortgage expert today said only half of lenders have passed on any benefit after the 0.5 per cent cut last month and warned that even fewer may react to this week's reduction.
Darren Cook, at comparison website moneyfacts.co.uk said: “The base rate is expected to fall again this week but we could have the situation where even less or no lenders choose to pass on a benefit to their customers.”
The big lenders that have accepted government bail-outs — Halifax, NatWest and Lloyds TSB — are seen as most likely to pass on the benefit because of political pressure.
For a typical £200,000 London repayment mortgage, a half point cut will mean around £60 a month off, while a full point will slash £120 a month from the monthly bill — if it is passed on.
Analysis by moneyfacts shows the lowest SVR is the 5.5 per cent offered by First Direct — still a full percentage point over the base rate. The most expensive from a major high street lender is the 7.34 per cent from Northern Rock, which is owned by the Government and has refused to offer new fixed rate deals to most of its customers.
Britain's biggest mortgage lender Halifax has an SVR of 6.5 per cent, while Nationwide is on 6.19 per cent.
Gordon Brown's spokesman said: “He thinks commercial decisions are best taken by commercial organisations. Obviously when official rates are cut customers would expect to see the benefit of that, but at the moment we are seeing difficulties in the interbank market.”
Reader views (30)
Paragon Company are the worse one. Last year took a substantial secured loan from them,within just few months they increased my payments twice as they said the interest rates were up few times..which i wasn't sure if true..yet from £525.00 it became £549.95 now.That was only a 6 months period i was with them?
Now..massive interest cut...I don't even have a penny down?
- M Atkinson, catterick garrison,north yorkshire, 07/01/2009 10:52
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Enough is enough, it's about time to stand up to the greed of these banks. Abbey have yet again declared record profits and do not require a gov bailout, but can't pass on the decreases in interest rates. Only 1 option to make them take notice, lets all default on 1 months mortgage payment. If we all did this, i'm sure they would listen.
- George, London, 04/11/2008 19:45
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Apologies:
The BoE bailed out Paragon (NHLC) nineteen years ago not nine.
Linton Judd
- Linton Judd, London UK, 04/11/2008 11:29
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To quote Steve from London:
"Are you telling me that we simply gave them taxpayers money without insisting on control?"
This is exactly what happened when the Bank of England bailed out Paragon (formerley NLHC) to the tune of £230m nine years ago.
I wrote to the Governor of the BoE to ask what conditions where attached to the bail out and I was advised by the Marketing Manager of the BoE "None." The letter further explained that the concern was to stop a "domino collapse of the Banking system following the collapse of BCCI." Don't expect things to be any different this time around. As Gordon Brown has stated, it is for commercial organisations to make commercial decisions.
- Linton Judd, London UK, 04/11/2008 11:08
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Barclays has cut the interest rate on ISA's by the full half percent with immediate eefect.
Nottingham Building Society SVR remains at 7.24%, unmoved by the recent half point reduction and shockingly out of line with the market. They were not as cautious in passing on the required increases during the last 3 years. And they have no sharehoiders to satisfy, so what is the justification?
- John, St Albans, 04/11/2008 10:13
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Banks are businesses and here to make money for themselves. People struggling to meet their mortgage repayments have only themselves to blame for buying houses they could not afford at the first place.
- John, London, UK, 04/11/2008 08:28
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Gee what a suprise huh !!!!!!
- Howard, Nanaimo Canada, 04/11/2008 07:21
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Consdiering how the taxpayer has bailed out the banks I think they've got no excuse but to pass on the vast majority of any rate cut to their customers
- Chaz, Perth, Australia, 04/11/2008 00:52
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Can someone explain why people should put their money into a bank with a low interest rate? The recent problems have nothing to do with high rates, but availability of capital (first too much, then too little). Penalising the investor is not going to restore the solvency of banks: look at the history of the Japanese slump over the last two decades.
- Mdj, Leyton, e10 london, 04/11/2008 00:43
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These banks ought all to have three balls hanging outside their doors. Obviously they won't pass any interest rate cut on - they want to hang on to taxpayers' money to pay their so-called executives' obscene salaries and shareholders' dividends. So Brown thinks "... commercial decisions are best taken by commercial organisations". Many comments could be made on that crass comment: suffice to say commercial decisions can be taken by commercial organisations if those organisations have not been propped up by public - your and my - money. Take heed HBOS, Bank of Scotland, Royal Bank of Scotland, Northern Rock, etc etc etc.
- Annabelle, london, 03/11/2008 23:05
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Crash Gordon has failed us again and his sidekick The Darling.
- Jacqueline, Hampstead, London, 03/11/2008 22:47
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Hang on a minute. We (the taxpayer) have just bailed out the banks by buying equity in them. We own them ! Are you telling me that we simply gave them taxpayers money without insisting on control? We should INSTRUCT them to pass on the interest rate.
- Steve, London UK, 03/11/2008 21:16
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If the banks don't pass on rate cuts to customers then they should be denied hand outs from the Govt.
Come on Darling, time to get tough. No good hiding in the cupboard now.
- Adam, Harrow, Uk, 03/11/2008 20:17
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MY God..the banks, if you are even ten pounds overdrawn send threatening letters and yet the scream out for goverment help and get it.
- Jaberwokie3, switzerland, 03/11/2008 19:16
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If a full cut in interest rates was not passed on to homeowners would this not make Alistair Darlings claim (Oct8th) "to protect depositors and safeguard taxpayers interests",untrue.
- Jon Dee, N Warks GB, 03/11/2008 19:12
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This is a good reason for creating a windfall tax on banks as well as oil companies. How dare the banks keep the money to themselves
- Keith Price, Luton, England, 03/11/2008 19:08
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The government owned Northern Rock has yet to pass on the last rate cut.
- Harry, London, UK, 03/11/2008 18:49
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Who are these rate cuts to benefit then? I have 3 BTL mortgages with Northern Rock and as your report suggested they have the highest SVR and are the most reluctant to pass on rate reductions. I think there needs to be a more public pressure put on Northern Rock as it is committing day light robbery and being able to get away with it.The most ironic thing about it is they are the government bank. Im sure the government are supposed to be protecting its people through this chaotic time! I think more pressure should be put on NR as im sure many of their clients are going in to massive arrears/default due to this high SVR. We appreciate that interest should be paid but not at these astronomical levels. We need the media to cover this story in more depth.
- E Cooke, London, 03/11/2008 18:42
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What I don't understand, is why although my interest rate is lower than It's been in the past, the amount I'm actually paying each month is the highest it's ever been.
The ruddy banks just make it up.
- Thalia, london UK, 03/11/2008 18:42
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what a surprise!!
- Marke, Houston, Texas, 03/11/2008 18:33
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Greed is a terrible thing - and it usually comes home to roost with a vengeance. In the first instance it visited us us, the taxpayer, with rescue packages. Now, to add insult to penury, not only do some of the rescued banks pay out fat bonuses and dividends but, in the most arrogant fashion, refuse to pass on the rate cuts.
The shareholders will (must) profit. And the dealers must play with other people's money. However, the ethical thing would be in these times to halt dividend pay and bonuses (where legally possible) and to plow that money back into the bank's funds.
One must be seen to be doing the right thing - with a social conscience.
- James, London, 03/11/2008 18:24
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Banks are no longer interested in offering the cheapest mortgage deals - they now need to shore up their books with savers' money. So unless you have a big deposit, don't expect any favours from the banks after the rate cut and those with tracker deals - check the small print. You'll find most lenders have a clause that says they won't dip below a certain percentage.
- Cp, London, UK, 03/11/2008 18:23
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The Government has the means to direct the banks at hand. It is called 'treating customers fairly' and it is the overarching principle under which the Banks are regulated. Perhaps our rather gutless FSA would step up to the plate on customers behalves for a change
- Paul Wilson, Bristol, 03/11/2008 18:14
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As a taxpayer I have "stickiness" about giving my tax money to banks who are profiting despite massive failings in Senior management. If they are not willing to pass on the rate cuts then we should not give the bailout funds. The banks have manipulated most mortgage payers onto a SVR (which is most profitable for them) by withdrawing alternative mortgage products to their Customers. All those coming to the end of their 3 to 5 year fix are now being exploited by these ruthless and greedy bankers who are taking full advantage of their new monopoly power over these Customers.
- Stephen, Wiltshire, UK, 03/11/2008 17:32
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Typical, shafted again. When will the people of this country realise that we can only make a difference if we act.
Drag some bankers from their lairs and hang them from lamp posts metaphoricly of course.
Intimidate them when your out in the street, protest outside their houses, make their lives miserable just as they make ours
- Kerry Trubee, purley, 03/11/2008 17:13
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The Office of Fair Trading (OFT) has ruled (Oct 2008), following a complaint I made to OFT concerning Paragon Finance Plc in 1999, that it is perfectly acceptable for a mortgage provider to charge 5, 6 or 7% above the SVR charged to new borrowers.
Paragon were rescued by the Bank of England to the tune of £230M and to recover their financial position proceeded to charge "old porfolio" mortgage holders between 4 and 7% higher SVR rates. This was despite the fact that my mortgage was not in arrears. Audited accounts held at Companies House also showed funding costs were not higher. Despite several letters from Paragon assuring me that they would reduce existing mortgage holder rates in line with market rates as soon as possible they never did. The Court of Appeal has also ruled that this "overcharging" is within the law. A commercial lender can charge whatever they deem fit to cover losses and make a profit.
I feel very sorry for all existing mortgage holders because if the OFT had dealt with my complaint promptly, rather than taking 9 years to reply, then the public would have been aware that that their mortgage SVR rate is really an "ARTP" rate, that is, "any rate they please!"
The idea that mortgage rates track the BoE base rate or LIBOR is a myth.
Linton Judd
- Linton Judd, London UK, 03/11/2008 17:08
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so what about some sympathy for the prudent saver who gets hit by the full amount of each rate cut every time by the banks and building societies? - no incentive to save in the UK - just an incentive to borrow AGAIN
- Rm, Poole, england, 03/11/2008 16:00
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We the taxpayers scratch your backs to the tune of £37bn, you give us the square root of squat in return.
- Nobby Clark, Perth, Scotland, 03/11/2008 15:59
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Good. Sod the borrowers, most of them have bought unwisely and way beyond their means. I on the other hand have been careful with my money and saved whatever I have been able to so why penalise me and the other savers to cover for fools mistakes. Strikes me that the best thing that we can do is to blow our dough on one big blowout and join the rest of the country begging for handouts.
- Dennis, Taplow U.K., 03/11/2008 15:21
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Future generations will wonder why we agreed so readily to be enslaved by the banking system. They will regard us as quaintly naive and a little soft in the head! Debt-backed fiat money is keeping us in penury; we really ought to slough off this system and reclaim our integrity as humans and not be driven to death by the debt-money system. Only our cooperation with this bogus system keeps it alive.
- Neil, london uk, Airstrip ONE ., 03/11/2008 15:18
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