The Base Rate Cut -- One Month On

December's base rate cut to 2% has had a significant impact on all of us. But which mortgage lenders and savings providers have been kind to their customers and which have been downright mean?
It's been exactly a month since the base rate was cut to 2%, and quite frankly, I'm depressed. The interest on my Halifax savings account has dropped yet again, and is now paying out a measly 1% AER. And with another base rate cut likely this Thursday, I won't be surprised to see my interest rate drop to zero.
To top it off, I'm on a fixed-rate mortgage, so I'm seeing no benefit from the base rate cuts whatsoever. But then again, with many lenders failing to pass on the full rate cuts to their customers, even variable rate borrowers are missing out.
So let's check out which banks and building societies have treated their customers more generously, and which have been totally and utterly stingy.
Savings
According to research from Fool partner Moneyfacts, 77% of providers have announced cuts in their savings rates in the past month, with the majority passing on the full 1% or more.
In fact, the data shows the average savings rate on a no notice account now stands at just 1.48%, with 38% of the accounts paying a rate of 1% or less on balances of £5,000. Absolutely pitiful.
The sinners
On the whole, the worst offenders have actually been building societies, not banks. Stroud and Swindon Building Society tops the list, cutting its savings interest rates by up to a whopping 2.5% since the 1% base rate cut in December. Its Classic Gold Savings Account is now one of its worst paying accounts, paying as little as 0.25% AER.
Kent Reliance Building Society has also cut its rates by up to 2%, while Chesham Building Society has reduced its rates by 1.35%. Other offenders include Northern Rock, passing on a 1.29% cut, and Nationwide and Abbey, both passing on a cut of 1.1%. The majority of other banks passed on the full 1% reduction.
The saints
According to Moneyfacts data, only 10 providers `generously' passed on less than a 1% cut. These include Anglo Irish Bank (0.75%), Marks & Spencer Money (0.5%) and Manchester Building Society (0.5%). Anglo Irish is still paying 4.55% AER on its variable Easy Access Account, as well as 4.6% AER on its one year Fixed Rate bond. Although this may not sound particularly exciting, you'll be hard pushed to find much better.
If you want to check out what other rates are on offer on savings account, check out this excellent article by Szu Ping Chan.
Mortgages
According to Moneyfacts, 76% of mortgage providers have announced a cut to their standard variable rate (SVR). But only 19 lenders have passed on the cut in full.
According to the research, 72% of lenders only passed on a cut of between 0.15% and 0.99%. Yet the cost of borrowing has fallen sharply for banks - the inter-bank lending rate (LIBOR) is now just 0.64% above the base rate, the smallest margin seen since the 18th March.
The baddies
Several building societies have passed on very little or none of the base rate cut to borrowers, with some reasoning they are doing this so they can offer better interest rates to savers. So you would therefore presume their savings rates would be pretty competitive.
Yet if we take a look at the five lenders that still have an SVR of 6% or above (having left their rates unchanged following last month's base rate cut), you'll see that three of them have already been named above as the worst offenders in terms of savings rates.
Lender | Current SVR |
---|---|
Stroud and Swindon BS | 6.79% |
Kent Reliance BS | 6.75% |
Chesham BS | 6.70% |
Market Harborough BS | 6.25% |
Darlington BS | 6.12% |
Source: Moneyfacts
Stroud and Swindon, Kent Reliance and Chesham, all have ridiculously high SVRs and yet they have also cut their savings rates by more than 1%. So clearly winners in this scenario are the lenders themselves.
Out of the banks, Alliance & Leicester, Northern Rock, Halifax, and ING Direct are among the worst offenders. Alliance & Leicester and Northern Rock have only cut their SVRs by 0.5% to 5.34%, while Halifax and ING have lowered their SVRs by just 0.25% to 4.75% and 4.59% respectively.
The goodies
At the top of the list is Cheshire Building Society which has cut its SVR by an impressive 1.94% to 4%. Cheltenham & Gloucester, HSBC, and First Direct are among the lenders that have cut their SVRs by the full 1%, falling to 4%, 4.44%, and 3.69% respectively.
Whether these lenders will be so generous if the base rate is cut again on Thursday, no one can say, but I doubt they will be. One thing for certain though is that savers are definitely likely to continue losing out. And that, in my opinion, is just not on!
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Comments
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Does anyone know what's going on with Stroud & Swindon? They were listed on previous articles of shameful building societies that were not passing on rate cuts. They've only cut their residential mortgage SVR to 6.59% and they've left their BTL SVR at a ridiculous 7.84%. I see they've withdrawn their new business buy to let products and the rest of their mortgage range is pretty ropey. It looks like they don't want to lend and want to get rid of their buy to let customers once discount rates end. I get the sense that they might have problems. Is anyone in the know?
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I may be naive but I don't understand why a tracker mortgage should need a collar or floor. If the bank/building society calculates that it can work with a margin of say 1.75% (above base) on a particular product then the 1.75% produces them the same income/profit whatever the base rate falls to doesn't it?
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This is why I use Zopa for my savings (there are plenty of articles about them on the Fool) my money is lent to people without the profit margins of a bank in the way so I get all the interest the borrower pays (excluding a 0.5% fee). I don't have much in there but I'm getting an average of 9% on it, on recent loans I'm earning over 13%. Admittedly there is a little risk, if a borrower defaults I could lose up to £10 thanks to diversification and I don't have instant access but that's something I'm prepared to put up with. Tom
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17 January 2009