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Are you getting the rate cuts you deserve?

by Sarah Modlock

It's not the first time and it wont be the last. But the excuses are wearing thin. More than half of all mortgage lenders have failed to pass on the full Bank of England interest rate cut to borrowers.

Financial information group Moneyfacts has revealed a survey which shows that just 58 of 120 lenders have passed on the Bank's August 0.25 percentage point cut. Some say that they did not pass on rate increases and so have no need to cut now. Other firms are still considering what to do. In the past, however, few if any firms make late decisions to pass on rate cuts when they should.

The Bank of England's Monetary Policy Committee (MPC) cut interest rates by a quarter of a percentage point to 4.5% on 4 August. And some lenders, most notably the Halifax, the UK's largest, immediately followed suit. But others have held off cutting borrowing costs or have trimmed them by less than the Bank's quarter point move.

Nationwide Building Society cut its standard variable mortgage rate by 0.1 point, while Royal Bank of Scotland (RBS) reduced rates by 0.2 point. RBS argues that it reduced rates by a lower amount because it had not followed the Bank of England in raising rates in the past. Others include Coventry, Skipton, Yorkshire and Melton Mowbray building societies, and NatWest, Royal Bank of Scotland and Woolwich. In total, 12 lenders have announced rate cuts of less than a quarter percentage point, while 58 lenders have reduced rates by a minimum 25 basis points.

'Our latest survey reveals that the amount of interest payable on a £100,000 mortgage is on average £401 higher than our last survey released in January this year,' says Darren Cook of Moneyfacts. 'Skipton BS customers should be pleased to see that their annual interest costs on a standard variable mortgage have only increased by £36.76, due to a generous rate reduction of 0.75% in July 2004. Borrowers who do not wish to switch their deal continually from one special mortgage offer to another may do well to look at the lenders that feature at the top end of the table below,' he adds.

The Moneyfacts survey shows the total interest paid on a standard variable rate mortgage of £100,000 between 1 July 2004 and 30 June 2005. Egg has regained the top position from second place HSBC who topped the last two surveys, with First Direct taking third place. The amount of interest charged by first placed Egg during the latest 12 month measurement period has increased by £414. At the other end of the scale, The Mortgage Business were the most expensive provider in the top 35 list, with an increase of £422 over the period. This equates to an overall interest cost of £1,160 more than Egg.

Borrowers with mortgages linked to an SVR are being warned that if rates fall again even more people will lose out. 'If there are further rate cuts I think we will see more lenders not passing on the full reduction,' says Charcol's Ray Boulger.

If you thought that borrowers had it tough to keep savers happy you would be wrong. In all, six out of 10 savings account providers are thought to have reduced what they pay on at least one account by more than the base rate reduction. As a result, millions of savers are facing cuts - there are about seven times as many savings account holders in the UK as home loan customers. So when you review your mortgage, you might want to take a good look at your savings, too.

Top 35 mortgage lenders

Total annual interest repayment on a £100,000 standard variable rate mortgage

Compiled 17 June 2005. Figures projected to 1.7.05. Source: Moneyfacts