Abbey National has become the first high street lender to announce that it will not pass on savings to borrowers from any further cuts to the bank base rate.
Following four base rate cuts by the Bank of England’s monetary policy committee (MPC) over the course of the year, the headline rate has been cut from 6% to 5%. Mortgage borrowers have benefited from these cuts because lenders have been quick to reduce their standard variable rates, but savers have been losing out.
The latest cut by the MPC has caused speculation that the high street banks will struggle to reduce their rates again should a further reduction be made, as those customers with savings will be hit hard. However, Abbey is the only lender to announce that it does not intend to pass on the full cut to savings account or standard variable rate mortgage customers.
Sharon Makin, media relations executive at Abbey National, said: ‘We are particularly mindful that the base rate cuts have hurt those who have retired and paid off their mortgage and rely on savings for income. In today’s uncertain climate it makes sense to protect the needs of savers as well as borrowers. While our final decision will depend on the economic circumstances at the time, should there be a cut of 25 basis points in the coming months, we would look to pass on a reduction of between 10-15 basis points.’
Nevertheless, other lenders remain committed to servicing the needs of borrowers, and have not yet followed suit.
Michelle Pegley, spokesperson for Alliance & Leicester, said: ‘We can still see the base rate going lower before it goes up, and we have got to follow whatever the MPC and our competition decide to do. But, while we will not go so far as to say that borrowing rates cannot come down any further, we have to look after savers as well.’
Rob Skinner, media relations manager at HSBC, agreed: ‘Every high street lender with borrowers and savers has to balance the interests of both. But the base rate is the barometer by which people judge interest rates and lenders would face searching questions from their borrowers if their rate did not come down as well.’
However, even if the base rate is nearly at the bottom of its cycle, and the next change by the MPC is to shift the rate back up, borrowers are now better off than they have been for a long time as mortgage rates are at their lowest level for around 30 years.
Peter Timberlake, public relations manager (housing) at Legal & General, said: ‘The best guess at the moment is that interest rates will soon have to creep back up, but even by the end of next year they may have only got back to parity with the rates in early 2001. So whatever happens will not mean a big change for savers in the short term.’