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  • 24/02/2003
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Base rates: The majority of UK lenders fail to pass on the full rate cut to borrowers

The Bank of England’s reduction of base rates by 0.25% earlier this month caught lenders by surprise, but some believe there could be another cut on the way.

Both the One account, formerly Virgin One, and Sainsbury’s Bank said they would cut their rates by the full 0.25%.

Other lenders have decided not to cut rates by the full amount and at the time of going to press, a few had still not announced new rates.

Peter Stimson, head of product development at GMAC RFC, said: ‘The base rate cut took almost everybody by surprise, and we are in the process of revising rates. There is also the possibility of another rate cut in the not too distant future, depending on when the war starts with Iraq. It is obvious the money markets are sorting themselves for another rate cut.

‘Essentially you cannot keep dropping the standard variable rate (SVR). We are in a market where a new borrower takes a discount, and is subsidised by existing borrowers on an SVR,’ he added.

However, Sally Laker, managing director of Mortgage Intelligence, pointed out SVRs are not that important.

She said: ‘For the main part the products out there are trackers rather than an SVR, most discounts are linked to base or Libor, for example. This makes the SVR less important, to new borrowers at least, because they will look at the deal they are going in at.’

Only Leeds & Holbeck Building Society has said its rates will remain the same. Cheltenham & Gloucester is cutting its rate by 0.2%.

Woolwich, Bristol & West, Yorkshire Bank, Northern Rock and Alliance & Leicester all dropped their rates by 0.16%. Egg, Abbey National and Standard Life Bank dropped by 0.15%, while Halifax, Bank of Scotland, Intelligent Finance, Birmingham Midshires, Nationwide and UCB all dropped their rates by 0.1%. Others, including GMAC RFC, were still working on the new rates at time of going to press.

‘This is an ideal opportunity for brokers to check their client base and ensure they contact those still on an SVR,’ added Laker.


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