Bank of England governor Mark Carney made his feelings clear today on how he expects banks to react to the interest rate cut. “Banks have no excuse for not passing on this rate cut,” he warned in his press briefing on the Inflation Report.
Coventry BS were the first out of the block to communicate their plan to pass on the full cut to variable-rate mortgage borrowers.
Santander swiftly followed with the news that it would apply the full reduction to its Standard Variable Rate (SVR). From the beginning of September 2016, Santander’s SVR will be 4.49%. The Alliance & Leicester SVR on mortgages will also be reduced by 0.25% to 4.74%.
The lender has assured its borrowers that all mortgage products linked to base rate will move in line with the reduction. These new rates will be used to calculate mortgage repayments with effect from the beginning of September.
Barclays plans to follow the same strategy by reducing all base-rate tracker mortgages and its SVR by the full 0.25%.
A spokesperson said: “We will provide advance notification to those customers whose mortgage payments will change.”
Later this afternoon, Virgin Money also promised to pass on a 0.25% cut to its SVR customers on 1 September.
NatWest is currently reviewing whether it will make any changes to variable rate products and will provide an update ‘in the near future’. However, customers with base rate-linked products will see their rates reduce by 0.25%.
Lloyds Banking Group has pledged to reduce its variable rates that track the Bank Base Rate by 0.25% from September, but is still reviewing its stance on SVR customers.
The Bank of England has also extended Quantitative Easing (QE) by £60bn to £435bn by a vote of 6-3 voted by 8-1 to introduce a scheme to buy £10bn of high-grade corporate bonds.
Until today, the Bank of England Base Rate had been held at 0.5% since March 2009.
Nationwide has taken a more cautious approach, sending an email to brokers which read: “We’ll confirm any changes to our variable rate mortgages in due course.”
Andrew Montlake, director of Coreco, said: “Mark Carney has pulled no punches in his message to lenders after finally delivering on his promise to cut rates. It will be a brave lender who ignores the pressure he has now put on lenders to pass on the rate cut to consumers immediately, telling them that they have “no excuses”.
“This is especially due to the new Term Funding Scheme he has introduced which is designed to reduce the cost of borrowing for banks down to the new base rate level and offset the effects of a lower base rate on their profitability.”
Montlake adds: “Any lender who dares to take on the governor looks as if they will be subjected to immediate criticism and no doubt there will be some heated exchanges going on in boardrooms today.”