Interest rate changes

RBS base lending rate

RBSRBS is 73% owned by the taxpayer. Photograph: Andy Buchanan/AFP/Getty

Royal Bank of Scotland has cut its lending rates for homebuyers, leaving Lloyds Banking Group as the last major lender holding out against the Bank of England’s call to pass on Thursday’s interest rate cut to borrowers.

When the Bank of England cut interest rates from 0.5% to 0.25% on Thursday to counter a downturn in the economy after the Brexit vote, its governor, Mark Carney, told bankers there would be no excuses for not passing on the rate to customers.

The RBS cut took its SVR to 3.75% and will also affect NatWest customers. It came as Lloyds, which is 9% owned by the taxpayer, said it was still reviewing its 3.99% SVR on Friday, but that it had already passed on the cut to those who had products which tracked the base rate.

The other government-backed lender, UK Asset Resolution, which owns some Northern Rock and Bradford & Bingley mortgages approved before the credit crunch, also cut its SVR, while HSBC announced earlier on Friday it would reduce its to 3.69%.

Many borrowers have moved to fixed rates or have loans that track the base rate, but nearly a third of mortgage customers – 2.2 million people – are on a lender’s SVR.

Some customers are left on theses rates because they are unable to shift their loan to more competitive providers because of blemished credit histories or a fall in their value of the property.

Lenders tend to have discretion over raising or lowering their SVRs. The mortgage lender Kent Reliance has the highest at 6.08%, and other lenders charge SVR customers more than 5.5%.

David Hollingworth, of broker L&C Mortgages, said: “More should be done to help borrowers move between lenders as well as ensure they have options with their current lender and are not left to sit on a high SVR because the lender knows they can’t move.

“It’s important to remember that not all borrowers are paying SVR purely through apathy and have seen their options curtailed by tighter [lending] criteria in recent years.”

Hollingworth calculated that monthly payments on a typical £150, 000 repayment mortgage are £792 at a 4% rate, while the same mortgage at 6.08% would cost £974 a month. A customer with a two-year fixed rate at 0.99% would pay just £564 month – a huge saving and a big boost to family spending power.

Ray Boulger, of the independent mortgage brokers John Charcol, said passing on rate cuts in full should be a requirement for banks taking part in a newly announced funding scheme, which was also announced by the Bank of England on Thursday. The new “term funding scheme” (TFS) could provide up to £100bn of new funding to banks but will charge them a penalty rate if they do not lend out the fresh funds.

Carney told lenders the scheme had been designed to relieve the pain on profits that banks would take as interest rates fell. Low interest rates are problematic for banks because they narrow the gap between what they pay to savers and charge to lenders.

RBS sparked controversy last week by writing to 1.3 million small-business customers to warn them it might want to charge them for making deposits if interest rates turned negative. McEwan said he did not expect this to happen, despite sending out the letters.

Carney insisted on Thursday that he was not a fan of negative rates. This view was backed by one of his deputies, Ben Broadbent, who told Reuters the TFS scheme would not be a backdoor way to introduce negative interest rates directly to banks without a cut to the headline rate.

Broadbent said: “There are limits for us, too. We would not want to offer that finance at hugely negative interest rates, because we would be making losses ourselves. There are limits to what monetary policy – indeed any demand management policy – conventional fiscal policy as well, to offset what is a structural effect on the economy.”

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