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Mortgage movers

Within minutes of the Bank of England monetary policy committee cutting base rate by 0.25 per cent last Thursday, the first lenders had announced reductions in their standard variable rates and, by the end of the day, nine lenders, including some of the biggest, had passed on the full rate cut to borrowers.

Abbey, Lloyds TSB/Cheltenham & Gloucester, HSBC, Nationwide, Royal Bank of Scotland, Halifax, Te Coventry Building Society and Natwest all cut rates, with most of the new rates coming into force from March 1.

Building Societies Association head of savings policy Brian Morris says: “With the housing market slowing, this cut will be seen as a boost to the interests of homeowners. The cut will be particularly welcomed by those taking out a new mortgage and those coming off a fixed-rate product.”

Royal Institution of Chartered Surveyors chief economist Simon Rubinsohn says the rate cut is welcome in a cooling market but says that more cuts may be necessary to offset the rising cost of living.

Figures from Nationwide show that a borrower with a £200,000 25-year mortgage on a standard variable rate of 6.99 per cent will see a reduction of nearly £32 a month.

But Rubinsohn says that tougher lending conditions coupled with rising costs in other areas of expenditure means it is unlikely that borrowers will get much from the rate cuts.

He says: “A reduction of £32 on a typical mortgage may offer some comfort but rising costs elsewhere are likely to offset any benefit.”

Industry commentators also warn that some lenders’ rates have become divorced from the Bank of England base rate so many borrowers may not see the full rate cut.

John Charcol senior technical manager Ray Boulger says: “Around 20 per cent of lenders did not pass on the whole of December’s rate cut and I expect the pro-portion to be higher this time round.

“We find ourselves in this situation as lenders’ margins, the differences between the cost to them and what they charge consumers, are at the highest they have been in a long time.”

Boulger says the credit crunch is still causing a shortage of funding for mortgage lenders and, although Libor rates have dropped from their peak over base rate, lenders are still paying more than bank base rate for their borrowing.

“Lenders’ funding costs for their tracker mortgages are primarily based on these rates and so they are still paying higher than the normal rates compared with bank rate,” he says.

Cobalt Capital partner Andrew Montlake also says many borrowers may not see the full benefit of the bank base rate cut.

He says: “Borrowers on products linked to standard variable rates could well lose out, as many lenders, faced with ongoing credit issues and reduced profitability, may decide not to pass on the interest rate cut in full.”

But Moneysupermarket. com head of mortgages Louise Cuming believes that many lenders have learnt the lesson from the last base rate cut in December and the poor media coverage that resulted from it.

She says: “Last time, we had the Halifax as the lone voice passing on the rate cut but this time there has been a whole host of them. The cynic in me says they all want some positive PR.”

She says because relatively few borrowers are on their lender’s standard variable rate, the impact of the rate cut will not be felt by many people but the rapid move by lenders will boost borrowers’ confidence.

Cuming says: “The difference it will make is probably very small but it is about confidence.”

She adds: “There are not an awful lot of borrowers on standard variable rates, estimates put it between 6 and 10 per cent, but they tend to be the most vulnerable and a reduction will make a difference.”



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