Clare Francis, Site Editor
Not all banks and building societies have yet responded to last month's quarter-point reduction in interest rates, but it's been a mixed bag among the institutions that have announced changes to their mortgage and savings rates.
We look at who's done what and highlight the best deals available for customers that have been short-changed and who should be looking to take their business elsewhere.
Mortgages
With households facing steep increases in just about every bill they pay, the Chancellor, Alastair Darling, had called on lenders to help ease the pressure by passing on the full 0.25 percentage point cut to variable rate mortgage customers.
However, while most of the major lenders have reduced their standard variable rates (SVR) by a quarter-point, many smaller mortgage providers haven't. Earl Shilton building society, for example, has cut its SVR by just 0.05 points, while Newcastle, Loughborough and Newbury building societies have reduced their SVRs by 0.15 percentage points.
The largest lender not to have passed on the rate cut in full is Northern Rock - its SVR has fallen just 0.1 percentage point. In fact, while Bank rate has fallen 0.75 points from 5.75% to 5% since December, Northern Rock has cut its SVR by only 0.35 points.
The reluctance of some lenders to pass on rate cuts in full is largely down to the impact of the credit crunch. Not only are mortgage providers becoming more cautious about who they will lend to, they are also looking to boost their profit margin so they have a bigger financial cushion to help them ride through tough market conditions, such as those we are experiencing at the moment.
Who is losing out?
Not all borrowers are affected by SVR changes. Interest rate reductions obviously have no impact on those with fixed rate mortgages and borrowers with trackers are guaranteed to benefit from the full rate cut because their home loans are linked directly to Bank rate.
However, around 20% of borrowers are thought to have SVR-linked mortgages. They are either paying their lender's SVR - most mortgage products switch onto the SVR once the fixed or discounted period ends - or they have a short term discount that is linked to the SVR, rather than Bank rate.
If you are on a discounted product, the chances are you will face an early repayment charge if you redeemed your loan, so remortgaging may not be worthwhile even if your lender hasn't passed on the full rate reduction. Many of those paying SVR, however, will not be tied in to their current deal meaning they are free to remortgage.
The credit crunch continues to take its toll on the mortgage market and the recent initiative launched by the Bank of England enabling lenders to swap good quality mortgage debt for government bonds, is not expected to alleviate the funding shortage completely. As a result mortgage rates for new customers are likely to keep rising and Louise Cuming, head of mortgage services at moneysupermarket.com, warns that the situation is unlikely to improve before the end of the year. You can hear more about this by watching our videoblog, Mortgage update.
That said, it is still worth remortgaging as there are some competitive deals available.
Leading mortgage rates
HSBC has a two-year discount at 5.43%. This is available on loans up to 90% of the property's value and there is a £999 arrangement fee. It is worth noting that this is a discount rather than a tracker, so the rate is linked to HSBC's SVR. The bank has passed on all previous rate cuts although they are yet to pass on the latest. If you don't want to take that risk and would prefer a more transparent tracker, then Cheltenham & Gloucester has the best two-year deal at 5.64%. The arrangement fee on this product is £995, although it is only available for loans up to 75%.
Another option is a lifetime tracker. HSBC is offering the best rate at 5.48% although this is only available for remortgage customers. The arrangement fee on this deal is lower than average at £599 and it is available up to 90% of the property's value.
If you would prefer the security of a fixed rate mortgage, Mansfield has the best two-year fix at 5.70%, while the best five-year fix is from Cumberland building society at 5.69%. Both products are only available for loans up to 75%, and the arrangement fees are £999 and £495 respectively.
Many lenders have stopped offering mortgages through brokers in a bid to manage volumes more easily - the only way to apply is to go to the lender directly. It is therefore well worth using our comparison tool if you are looking for a home loan as moneysupermarket.com lists direct mortgage deals as well as those available through brokers, making it much easier for you to identify the best product.
If you are unsure about what type of mortgage to go for or are worried that you may struggle to have an application accepted in the current environment, call one of our advisers on 0845 345 5705 for tailored advice.
Savings
While many borrowers have lost out because banks and building societies have not passed on the rate cut in full, savers have benefited.
Not only have some providers not cut savings rates, but new accounts have been launched offering market leading rates. Abbey's new Instant Access Saver account is paying 6.5%. This is an easy access account and there are no withdrawal restrictions. The rate does however, include a one percentage point bonus which runs for 12-months and the minimum balance is £1,000. At 1.5 percentage points above Bank rate, this is a fantastic deal and it's not the only easy access account paying 6.5%.
Alliance & Leicester (A&L) has announced that the rate on its eSaver account will remain unchanged at 6.5%. This account is available on balances of £1 or more. However, while it allows unlimited access to your money, there are withdrawal restrictions - no interest is paid in any month a withdrawal is made, with the exception of the month of July.
Birmingham Midshires is also offering 6.5% on its e-Saver account, as is Kaupthing Edge on its Instant Access account. And if you can afford to lock your money away for a year, you can earn an even higher rate of interest.
Icesave has just launched a one-year fixed rate bond paying 7.01%, while ICICI Bank has a one-year fixed rate deal paying 7.0%. Icesave requires a minimum investment of £1,000, while ICICI's minimum is just £1.
Why are rates so high?
The reason why we are seeing such mouth-watering savings rates is because of the funding shortage in the wholesale banking markets - institutions are struggling to raise funds for loans and mortgages there, so they are turning to retail customers instead and are seeking to pull in as much money from them as possible.
Don't be complacent though
Savers cannot rest on their laurels however. While the rates on certain accounts are incredibly attractive, those on many others are far less impressive. Institutions are looking to widen their margins from customers who they know are unlikely to move to a better deal.
Kevin Mountford, head of savings at moneysupermarket.com, said: "Many providers are retaining a strong rate on a lead product in a bid to attract new customers, while manipulating their back book, to the detriment of loyal customers."
A&L is a prime example. While the rate on its eSaver account has been left unchanged following last month's rate cut, the rates on its other savings deals have been cut. Most have fallen by 0.25 points, but the rate on its Directsaver has been slashed by 0.38 points.
And not all providers are competing in the savings price war. None of Barclays' savings deals are particularly attractive - rates on most of its accounts have been cut by at least 0.25 points. The only account not to have seen its rate fall by that amount is the E-savings account. That is now paying 3.98% on balances between £1 and £100,000 - down from 4.17%.
Anyone with money in a poor-paying savings account should switch and take advantage of one of the 6% plus deals available. There has never been a better time to be a saver. Click here to see what's available.
Have your say: Are you a winner or a loser following last month's interest rate cut? And how is the credit crunch affecting you? Visit our community forum and let us know.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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