Shawbrook product collar blocks 0.25% interest rate cut for its borrowers

In a communication issued to the market on Friday regarding its residential mortgage borrowers, the lender said: “Following on from the Bank of England’s decision yesterday to cut interest rates to 0.25%, we would like to confirm that this will have no tangible effect to our products. We apply a floor to the rate of 0.50% and therefore no changes are required.”

Shawbrook Bank declined to offer any further comment on whether the product condition would impact its competitive position in the second charge market, which at present represents the scope of its residential lending.

Immediately after the 0.25% rate cut announcement issued on Thursday 4 August, lenders began to reveal their intentions to pass on the rate cut, in most cases to all variable rate mortgage borrowers. This includes those on base-rate trackers, discount products or Standard Variable Rates. However, a handful, namely Lloyds Banking Group, Yorkshire Building Society and NatWest are all reviewing their stance on SVR mortgages and have yet to announce what, if any, reduction will be passed on to borrowers on these rates.

Clydesdale and Yorkshire Banks and Skipton Building Society have so far held back on what they plan to offer their variable-rate mortgage borrowers.

Non-high street banks Precise Mortgages and Paragon are the latest two lenders to tell borrowers that they will pass on the 0.25% rate cut in full to customers, which they were urged to do by Bank of England governor Mark Carney.

A spokesperson for Paragon Mortgages said: “Base-linked mortgages will reduce in line with the Bank of England base rate and customers will be notified of their new rate.”

Alan Cleary, managing director at Precise Mortgages, said borrowers on variable products would see a drop in rates, commenting that the 0.5% floor, applied by Shawbrook, was unusual.

He said: “I don’t think it is common in the market, although a lot of us will have a floor of zero so you don’t allow the rate to go negative, as it would cause all sorts of issues. But I don’t think it is common to have one that is 0.5%, I think Shawbrook is unusual in this regard.”