Banks urged to reduce mortgage costs as interest rate cut
Banks and building societies have been urged to pass on the latest interest rate cut to their borrowers, with the Bank of England telling them there is 'no excuse' not to.
The base rate has been cut to 0.25% in the wake of the Brexit vote, potentially benefiting millions of borrowers on tracker and standard variable rates. However, some banks have been initially reluctant to pass these savings on, risking confrontation with the Bank's governor Mark Carney.
The Bank of England has announced a range of measures designed to support the UK economy following the decision to leave the European Union. As well as further quantitative easing, the Monetary Policy Committee also voted to reduce the base rate by a quarter of 1% to a new record low of 0.25%.
The Governor of the Bank of England has urged lenders to pass on the cut in full, telling them that the Bank of England's package of measures was deliberately designed to ensure banks were not left out of pocket. Mark Carney said: “The banks have no excuse, with today’s announcement, not to pass on the cut in bank rate.”
However, the major banks have said that a rate cut would result in a decrease in profits as the gap between what they can pay savers and charge borrowers narrows. Lloyds said its profits will fall by £100m while HSBC expects a £150m reduction in its annual profits.
Many lenders keep SVRs 'under review'
While many lenders were quick to acknowledge that borrowers on products directly linked to the Base rate would see their repayments fall, the decision to reduce their standard variable rate (SVR) remained under review.
17% of NatWest mortgage borrowers are on their SVR of 4%, but have so far not seen any change to their payments. “We are currently reviewing whether we will make any changes to variable-rate products and will provide an update in the near future,” NatWest said.
However, some major High Street names have already confirmed they will pass on the cut in full. Santander says that it will cut its SVR by the full amount in September, bringing it down to 4.49%, and 4.74% for former Alliance & Leicester customers. Nationwide Building Society has also confirmed that it would pass on the cut in full from 1 September.
Virgin Money was another lender who immediately cut its rate by 0.25%. Jayne-Anne Gadhia, Virgin Money chief executive, said: “We recognise the important role that banks have in supporting growth in the underlying economy by passing on lower borrowing costs to customers."