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Fury as banks still charge 6%
Jonathan Prynn05.12.08
- Should we ditch sterling? The political argument is back
- Credit card holders still pay up to 17%
- Bank of England slashes interest rates to 2%
- Angela Knight: 'Banks can't afford to help borrowers'
- Pound could soon be worth just one euro
- Jonathan Prynn: Banks won't throw good cash after bad
- Brown assures homeowners he will press banks to pass on rate cut
- Boris Johnson has hosted an emergency summit with Britain's major banks
Millions of angry borrowers were left out of pocket today after banks refused to pass on the full cut in base rates.
First-time buyers and people remortgaging recently-bought homes still face "debilitating" rates of up to or even above six per cent - despite the Bank of England slashing its borrowing rate to two per cent yesterday.
The dramatic gap emerged as Gordon Brown warned banks they must cut the cost of mortgage borrowing or face being carpeted by him and the Chancellor.
"Remember, the last time and the interest rates came down 1.5 per cent, we had to talk to the banks before things moved forward but things did move forward," he told GMTV. "And we will be talking to the banks again."
But this afternoon Royal Bank of Scotland, which was bailed out with taxpayers' billions, defied the Prime Minister by refusing to pass on the Bank's one per cent cut in full. It reduced its standard variable rate by only three-quarters of a point, to 4.44 per cent.
First-time buyers will not benefit from the Bank's cut unless they have huge deposits. Andrew Hagger, of Moneynet.co.uk, said: "Nothing is moving on mortgages with a 90 per cent loan to value. Lenders are just not interested."
Research from personal finance publisher MoneyFacts showed banks are making considerably more money from their fixed-rate mortgages than a month ago. At the start of November the average two-year deal was 2.05 percentage points above "swap rates" - the wholesale money market rate at which banks borrow their money for mortgages. Yesterday, even before the cut, the "margin" was 2.86 per cent and now it will be closer to four per cent.
The vast majority of deals for borrowers with a mortgage of less than 25 per cent are at six per cent or even higher, compared with the record-equalling two per cent base rate.
It is feared that without making more attractive deals available to first-time buyers there is no chance of getting the housing market moving again.
Peter Rollings, managing director of London estate agent Marsh & Parsons, said: "In order to stoke recovery, the Government must work with lenders to make mortgages available to buyers. We know there are people out there who want to purchase their first home, or move house, but the lack of mortgage finance is still debilitating." The problem is not limited to first-time buyers as increasing numbers of borrowers who need to remortgage are finding that their equity has been severely squeezed or wiped out altogether by falling property values. In London that means first-time buyers are having to find £50,000 to £60,000 to get any of the benefit of the recent rate cuts.
Anyone who has bought a property within the last two years also faces the problem as their first mortgage deal expires. The slide in house prices means that banks when banks or building societies assess the equity in their house to calculate the effective deposit on a new mortgage deal, many borrowers face having effective deposits well below the 25 per cent needed to access the best deals.
Ray Boulger, senior technical manager at broker John Charcol, said: "If anything the bank rate cut could make the situation worse. The amount of money being deposited with banks has been falling as the interest rate comes down. That reduces the amount of money available to offer as mortgages."
Reader views (23)
Lewis, London
"What do you all think banks are? Charities?"
Errr, well they certainly took taxpayers money like charities....
- Mcw, London
It is time to put The Bank of England back in charge.
We need to return the power back to The BoE. When they say jump the banks should jump. I am bored of the mess these free market economists continually make. The create the mess but are never around to clean up.
Gordon Brown needs to get his act together and put the banks right in their place and stick the BoE back in charge
- Brian Davis, London, UK
RBS First of all they get 50 billion from the tax payer then they dont pass on the interest rate reductions from the Bank of England and to top it all they increase there Bank charges for people with overdrafts and businesses.
Just who out there exactly is protecting the consumer from these rip off merchants.
- Mr S.Port, London
Oh shut up all of you whinging and moaning. Presumably you took your mortgages out with an SVR that has since dropped - what's the problem? Whingers. Would you be bleating so incessantly if the BoE rate had gone up, would you now be begging the banks with all your righteous indignation to hurry up and pass on the rate increase?
What do you all think banks are? Charities? And GB should either nationalise the entire country or shut up. Do you actiually yhink you own the banks? Does that mean I, as a childless taxpayer paying for your children, own them?
You have all wanted this country to be run by the Tories since 1979 - yes I include the 'more Tory than the Tories 'Labour' party' in that - now let the fun begin, as you reap the rewards of the rights without responsibilities world you have created.
The thing that makes me laugh, albeit in a slightly desperate way? Everyone knows the only one talking any sense is Vince Cable yet it's 'ooh er, no I've always voted Tory/Labour, I won't be voting LibDem'
- Lewis, London
Well this may not make me popular but let's face some reality. By all means lets hang the current set of bankers by their bonuses, and the government should have let some of them (eg Northern Rock) go bust and then nationalised them for £1. However, the banks are bust or near bust. They have to lend again to businesses so we can get out of this recession and that means they need to charge a bigger margin on their loans to build up reserves. You can't lend money you don't have (that's partly how the banks got into their current mess).
- Cary, London
Savings have collapsed since 1997 and debt has erupted. The banks need to build up their reserves (as required by the government agency the FSA) and as hypocritically demanded by Gordon Brown - the country's arch-debtor and creator of the problem in the first place.
Banks cannot do both at once. You cannot buck arithmetic. Bucking arithmetic is what caused all this in the first place.
If HMG insist on bucking arithmetic the £ sterling and the UK's credit rating will both collapse. Energy and food costs will be higher. We import energy and we import food. We need a strong currency and a good credit rating to be able to do this satisfactorily.
Sure, the banks caused much of this, but, we should look closely at our own behaviour and our attitudes to financial prudence and just plain old fashioned standards of behaviour. We spend billions on handouts to the underclass and cleaning up after them (witness Baby P and Shannon Matthews)
We should stop rewarding weakness. Irresponsible borrowing is one of those weaknesses.
- Anglo, Sussex UK
Northern Rock is a nationalised mortgage lender. Surely the Government can exercise influence over their lending rates, otherwise what is the point of keeping them in business on the back of tax-payers money.
- Brian, Bristol
I thought the whole purpose of the interest rate cut was to ease the pressure on ordinary people, enable them to spend and stimulate the economy.
What's the point if the banks try to, simply, profit from the exercise and the pounds takes a further kicking. Surely the Band of England should have sounded out the banks about their intentions first and then only cut the rate of interest by 0.5% if they were reluctant to pass on the full benefit. The cut the rate by a further 0.5% in january and so on.
- Kevin, London
It is exactly as I said it would be. We would have been better to have had a higher rate above the eurozone to try and protect the pound. In the "boom" years we were always above the eurozone so why not now. If the Banks will not reduce their rates (which most people must have guessed they would not do) there was no point in reducing the rates at all.Unless the government act and make them reduce their rates the Bank of England will have acted for nothing.The trouble is that property is overpriced and the Banks are doing the right thing by making lending tight and restrictive so there is no point in estate agents wanting to see the market active now. They will in time see it active but with prices at a much lower rate.
- Peter Ellis, Bushey herts England
I called Lloyds TSB today and asked why the rate of interest charged on my credit card account had not been reduced although no time had been lost in cutting the rate paid on savings accounts. The answer given was that funding for credit cards is obtained from a different source! When I asked precisely what was this mysterious source that appears to be immune to markets I was then told that it was something to do with, er, VAT! You really have to hand it to our banks for sheer greed and incompetence. Perhaps Lloyds might consider a little more staff training with the ridiculous profits being made from the public.
- Neil Simmonds, London
Gordon Brown needs to let them know he will renationalise the banks if they don't toe the line on rate changes
- Keith Price, Luton, England
Don't forget - not everyone has derived benefit from the reduction in interest rate reduction. There are many folk out here who took fixed rate deals in 2007 and in early 2008 when inflation seemed to be the greatest threat to the economy and rates were increasing. How were ordinary folk in the street expected to know that the economy was about to go into free fall. Those folk are now paying 5.75%+ , a good 1.75% to 2.75% above going mortgage rate of between 3% and 4%. They must be absolutely livid that national economic management has left them in that position - and quite rightly so. And don't say that it's their fault for making the wrong call. They decided to fix against the rising prices (inflation) at that time in order to make sure their domestic economies could remain stable - and look where it's got them. For those on 2 or 3 year fixed deals taken out up to a year or so ago - its going to cost them a few grand. So to Brown and Darling - you've stuffed these prudent folk.
- John, Leighton Buzzard
The people dislike him and the banks dont tust him.That is Gordon Browns unfortunate position.
Gordon Brown has failed to gain the support he urgently needs from Bankers because they do not trust him.He failed to protect us when he was Chancellor of the Exchequer and continues to try to spin his way out of trouble
No body has any RESPECT for him and without that whatever he does will fail and he will continue to bang his head on a brick wall
- Alex Pomeroy, london
The Banks are not making any money thats why they are laying off!! The banks have to show some consideration to savers like myself that did not go and borrow more money than I could afford and put some away for a rainy day. Lowering interest rates wont cure my domestic bills headache that is swallowing a huge chunk of my take home pay. The Utility companies are the ones making the money.
- Bob, Newark, UK
Strikes me that the banks are keeping the interest rates up to reward those of us that have not chosen to live beyond our means and spend money that we do not have.
Put the rates up to 10% and reward thoise who are forced to live from the interst income, mainly those thrifty pensioners who have previously worked hard for the country !
- Prudence, London, England
I am on 6.1% SVR and am waiting for the one account underwriten by RBS to pass the previous rate cut of 1.5% on!!!!!!!
- Catherine, london
Enough is enough. We have already bailed out the banks and avoided a systemic crash of benefit to all UK banks. The banks must now start to lend to credit-worthy borowers at base rate 2% plus a 1% maximum margin.
So, to make this happen, as an ex-banker, the only answer I can suggest is to totally nationalise at least two of the big banks,(they almost are anyway- so it is just a very small next step) sack their entire board of directors, appoint new boards, design and issue a new corporate banking policy, and begin a new banking regime with these two banks as the new model and "father figure" examples for the future of UK banking. All customer deposits in these two banks would be guaranteed by the state.
Desparate times require desparate, but practical, measures. Here is your answer Gordon Brown! Just do it...
- Michael Parsons, London , UK
Brown has played the wrong hand - the unemployment register will never decrease and to support the poor and unemployable he will have to tax the rich much more heavily than has happened in the past. Coupled with such the government must launch a substantial civil works programme, such as Hitler did when he came to power and rescued the German economy. Things like preventing coastal erosion, enhancing land reclamation, forestry, roads, canals, dams, plus enlarging our armed forces and police etc.etc.
- Robert El-Cid,, Hull, East Yorks.,
Perhaps if people realised that if instead of buying an expensive house with near a 100% mortgage (i.e. beyond their means) they bought a slightly more modestly priced house with a smaller mortgage, they would not find themselves with such problems.
Put yourself in the lenders position, would you lend £200,000 to someone to buy a house which might be worth £150,000 in a years time?
- Tom, Watford (UK)
time for this Government to grow some balls and act NOW!!!!!!
- Jonny, London
This useless government has for many months now wasted precious tax money on banks and their private shareholders. They are getting nothing in return. Crash Gordon comes very ill prepared and he should go!
- Jacqueline, Hampstead, London
I'm sitting on an SVR of 6.49%. The Nottingham Building Soc graciously reflected the recent cumulative 2% reduction by reducing its SVR from 7.24% to 6.49%
So three quarters of one percent when the rate drops by 2%, and with this latest cut somebody is making money somewhere!
- John S, Herts
Nationalize the lot NOW.
- Eric Bristowe Morkinthin, Bagshot
