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Banks finally shamed into 1.5 per cent rate cuts
Paul Waugh and Jonathan Prynn7 Nov 2008
BRITAIN'S banks bowed to huge public and political pressure today to slash mortgage rates for millions.
After a tense meeting with Chancellor Alistair Darling, the high street's leading names agreed to pass on "all, or most" of the Bank of England's shock 1.5 per cent base rate cut.
Treasury sources said that the bosses from Royal Bank of Scotland, Barclays, LloydsTSB, HBOS, HSBC, Nationwide and Standard Chartered all caved in after being read the riot act by Mr Darling over their failure to respond swiftly to help hard-pressed homeowners.
Crucially, the move came as the three-month inter-bank lending rate, or Libor, fell by more than one per cent, from 5.561 to 4.496 per cent.
Until now, LloydsTSB and Abbey were the only lenders to drop their standard variable rates following the Bank of England's move yesterday to reduce the base rate to three per cent, the lowest in 53 years.
However, hundreds of thousands of people with tracker mortgages were warned today they will not benefit from any future rate reductions. Lenders can now use small-print clauses in contracts to stop passing on cuts.
A host of banks and building societies rushed to withdraw their tracker deals from the market but they were this afternoon expected to announce they had been reinstated.
Each of the bank chiefs gave the Chancellor their personal assurances that they would now act. They also pledged they would ease the pressure on small businesses.
Mr Darling hauled the bosses into the Treasury for an emergency meeting to tell them the public were angry that they had so far seen little in return for the Government's £37 billion bail-out. He expressed his "deep concern" that banks were failing to help "customers feeling the pinch". Bradford & Bingley, which is now nationalised, today cut the vast majority of its variable rates by the full 1.5 per cent. But there were still worries that its standard variable rate was unchanged at 7.09 per cent. Gordon Brown underlined government anger at the banks today before the meeting. "I believe it is important that these cuts in interest rates are passed on to mortgage holders and to small businesses.
"I think there is now an understanding that the Government has done what it can, the Bank of England has done what it could yesterday by reducing interest rates," he said. "It's now up to the banks to take their role seriously to do what they've got to do to resume lending and at rates that are appropriate and not rates that are excessive."
Tory leader David Cameron urged Northern Rock to cut its rates too: "The interest rate should be passed on. If they do not, further action may be necessary. The Government owns some of these banks now, so they can take steps."
Chief executive of the British Bankers' Association, Angela Knight, said: "The banking industry recognises that government wants strong banks and is grateful for the support we have had.
"Banks are committed to doing their part to help rebuild the UK economy as well as ensuring we help and support all our customers - both lenders and savers."
The "collars" or clauses written into the terms of tracker deals will come as a shock to many borrowers who were looking forward to further big falls in their mortgage bills.
Eddie Weatherill of the Independent Banking Advisory Service, said: "A lot of people aren't aware of the collars and don't understand them."
The Nationwide collar is automatically triggered when the base rate falls to 2.75 per cent, which many City economists believe could happen as soon as next month. The Halifax collar comes into force at three per cent. It has the discretion not to invoke it and says it has not yet made a final decision.
Reader views (10)
But no-one is talking to the mortgage companies about their Standard Variable Rates, which are stuck at 6.5% and above. Hundreds of thousands of us are on tracker rates, and the base rate cut has made no difference to us at all, despite the LIBOR tumbling. Why hasn't Alistair Darling made sure these rates are changed accordingly too?
- Anna B, London UK, 10/11/2008 10:33
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As a taxpayer who is already subsidising some of the major banks through the bail-out package, I find it staggering that the banks are not acting in the best interests of the nation as a whole. We came to their rescue. When will they come to the rescue of the public.
Perhaps those of us who have accounts in the black with those banks who are not fully passing on the cut in interest rates to their borrowers could move their accounts to those banks who are. After all, why should I continue to lend my money to Barclays if they are not prepared to help mortgage holders and small businesses?
- N W, Newbury, 07/11/2008 15:25
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Why doesn't somebody rid us of these terrible priests? These 'bankers' are made up of greedy, self centred 'me first' individuals who do not recognise 'good governance' nor humility.
The essential driver of bankers is greed. There is no altruism anywhere in their ill-formed, incompletely developed brains.
They don't make anything. They just make money by making money.
- Gordon Mann, mexico, mexico, 07/11/2008 15:07
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Are you joking????
Where am i living some kind of socialist hell?
What happened to market forces.
Don't like something .. o.k. let's move the goalposts, change the rules, or count things in a 'better' way.
Let me out of this country.
You CANNOT say it is a free market, then order companies to do what you want so you can be liked. It's a joke.
On top of which they want the banks to make money as the taxpayers own them, now they want them to not make money.
Basically this bails out non-prudent people who have overstretched themselves, with money from everyone.
Oh joy.
Anger? yep. One more family on the way out. Time to leave.
- Step, Windsor, 07/11/2008 15:00
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Let 's hope that the Government and press will "name & shame" unco-operative banks and bankers perhaps telling us their salaries,expenses and bonuses.They have no longer any right to privacy having been bailed out by the taxpayers.
- C Adams, pont l abbé france., 07/11/2008 14:57
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I may be wrong here, but I thought that LIBOR stood for London Inter Bank Overnight Rate.
- Potter, London, UK, 07/11/2008 14:55
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Why is this a good thing? All it means is that savers will have their interest rates cut which, given that inflation is still over 5% will mean they'll be losing money every month. This is just robbing the prudent to pay for the profligate. Normal practice for socialists maybe, but a morally bankrupt action by any standard. People who took on debts they couldn't afford should take the consequences and not be given money stolen from those that lived within their means.
- Derek, London, 07/11/2008 14:30
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Anyone on tracker rate right now will benefit hugely and the benefits wilk make big differences.
Its just the people on discounted variable rate deals that may cause problems as lenders may not drop variable rates by the full cuts in rates.
Its only huge cuts in Base rate that may cause some of the banks to impose collars and the real problem now is the lenders withdrawing tracker rates and that was inevitable as the banks are borrowing funds at 5.50% upwards so why would they lend on tracker rates at BBR + 1 or even 2%? they would lose money and if base rates keep falling, of course the have no choice except to pull rates. Its those that have trackers already that will benefit and those wanting new mortgages - its more misery for you. Thats the cost of delay.
- Mortgage Broker N3, London, England, 07/11/2008 13:23
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Banks are the same in Australia as in England, making massive profits.gets Govt guarantee to protect depositers money,and they dont pass on drop in bank rate.. mind you if the rate went up it would go up the customers and they would pay the full amount straight away.
Banks are taking over the reputation of the used car salesmen. Robbers, rip off merchants, etc, etc.
- David Evans, Gold Coast, Queensland, Australia., 07/11/2008 13:21
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So banks will profit more, good to know! I would advise people to stay away from loans until THEY think they are getting a good deal. Banks need to realize they need to earn our business, not expect it!
- Brandon Thomas, London UK, 07/11/2008 12:58
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