Newspaper article The Evening Standard (London, England)

Losing Interest

Newspaper article The Evening Standard (London, England)

Losing Interest

Article excerpt

Byline: Lorna Bourke

ARE homebuyers getting a raw deal from lenders who fail to pass oninterest-rate cuts? One in five mortgage lenders has not yet reduced theirmortgage rates following last month's 0.25 per cent cut in the Bank Base Rate(BBR). Prime Minister Gordon Brown said that lenders have a "duty" to pass oninterest-rate cuts to borrowers.

Struggling homebuyers definitely need all the help they can get.

But many lenders, including Intelligent Finance, Newcastle Building Society andSkipton Building Society (the sixth-largest lender), have failed to cut theirStandard Variable Rates (SVR).

Others, such as Alliance & Leicester, Egg, Scottish Widows and Northern Rock,have cut rates by less than 0.25 per cent.

"About 10 lenders have done nothing yet," said Lisa Taylor of comparisonwebsite moneyfacts.co.uk. "It could be they are waiting to see if there aremore reductions in BBR before making a move." With the Bank of England leavingrates unchanged at 5.5 per cent, borrowers will continue to suffer if theselenders do not bring down their rates.

The Council of Mortgage Lenders explains that the high cost of borrowing in thewholesale money markets is pushing up lenders' costs. But there is no doubtthat some lenders are using the opportunity to improve their profit margins.

Borrowers with existing tracker mortgages should see costs come down in linewith BBR. But new trackers will be more expensive. The reason is that alllenders borrow some of their funds in short-term money markets using LIBOR (therate at which banks lend to each other). This has been 6.89 per cent, wellabove BBR, since the start of the credit crunch last year. Because lenderscannot lend at a lower rate than they borrowed, this is why some lenders havenot yet reduced their rates in line with BBR.

Some lenders are in trouble Are any lenders profiteering at borrowers' expense?Some may be. But others are struggling to maintain any sort of profit margin. …

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