Rate cut `might not be passed on`

The 0.5% to 1% interest-rate cut expected from the Bank of England on Thursday is unlikely to be passed on in full to borrowers.

Only 54 out of the 96 mortgage lenders with a standard variable rate (SVR) have so far passed on last month`s 0.5% reduction.

In fact, Abbey and Halifax have actually increased the cost of some of their tracker deals, which automatically move up and down in line with the base rate, by up to 0.5%.

The problem for lenders is that the key inter-bank lending rate, three month Libor, has only just fallen by 0.5%, dropping from 6.27%, or 1.27% above the Bank's base rate, on October 8 to 5.73%, or 1.23% above base rate, on Wednesday.

If mortgage lenders passed on a 0.5% cut in full it would slash the monthly cost of a £150,000 mortgage by £46 to £921, based on a new rate of 6%, while a 1% cut would knock off nearly £92 a month.

David Hodgkinson, chief operating officer at HSBC, warned earlier this week that said there could be some "stickiness" even if the Bank of England reduced rates as expected on Thursday, adding that credit had been "mispriced" over recent years.

Copyright © PA Business 2008

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