Mortgage lenders not passing on base rate cut

One month after the Bank of England’s 0.25 per cent cut in base rates, research by Moneyfacts has found that many lenders are not passing on the reduction to borrowers on variable rates.

Charlotte Nelson, finance expert at Moneyfacts, explained: “Borrowers would have assumed that a 0.25 per cent cut in base rate would make them financially better off, particularly if they were on a variable rate. However, this is unfortunately not the case, with just under half of providers failing to pass this cut on to their Standard Variable Rate (SVR) customers.”

The average SVR mortgage is down 0.09 per cent month-on-month, from 4.80 per cent at the start of August to 4.71 per cent today. In comparison, the average two-year tracker mortgage has decreased by 0.19 per cent from 2.13 per cent to 1.94 per cent, and the lifetime tracker rate has fallen by an average of 0.24 per cent, from 2.98 per cent to 2.74 per cent. The average fixed rate mortgage, meanwhile, decreased by only 0.03 per cent from 2.48 per cent to 2.45 per cent.

Given that fixed rates are at all-time lows, borrowers sitting on their SVR could still be better off opting for a fixed rate according to Moneyfacts whose calculations show that borrowers would be £243.03 a month better off (based on a £200,000 mortgage over a 25-year term on a capital and interest repayment basis) if they took out an average two-year fixed rate mortgage at 2.46 per cent, rather than staying with an average SVR of 4.71 per cent.

Tracker mortgages have also fallen foul of Moneyfacts scrutiny.

“The average two-year tracker rate has been reduced by 0.19 per cent,” said Ms Nelson. “Yet shockingly, some providers, preempting the announcement, chose to increase their variable rate products, meaning the reductions have been offset. To illustrate this, at the start of July the average two-year variable tracker rate stood at 2.01 per cent. This had increased by 0.12 per cent on 1 August, therefore reducing the effect of the reduction in the month of August to 0.07 per cent in real terms.”

She added: “Given the bumpy road ahead for the economy, some providers are still quite cautious in their reaction to this new turn of events, with many choosing to wait and see to ensure they get the timing right.”

This may mean that mortgage customers could also be better off waiting for a bit to see if rates can go even lower, or alternatively a low fixed rate mortgage might be the safest way to go with all the uncertainty at the moment.