Mortgages still four times rate set by Bank

HOMEOWNERS are still paying mortgage interest at rates up to four times as high as the official Bank of England rate, despite Gordon Brown's warning that lenders must pass on rate cuts.

The Prime Minister pressed high street banks to pass on the one percentage point cut to struggling borrowers yesterday.

Although taxpayers are now majority shareholders of many of Britain's leading banks thanks to the bailout package, the government has stopped short of forcing lenders to cut rates.

Among those holding out on customers yesterday was GE Money, which charges 8.44 per cent for its variable rate – more than four times as much as the base rate of 2 per cent.

But there was good news for 750,000 homeowners with tracker mortgages yesterday when Halifax and Nationwide said they would pass on the rate cut in full to these borrowers, despite clauses in agreements stating they did not have to.

The move by Halifax followed speculation that City watchdog the Financial Services Authority could force it to reduce its rates as borrowers had not been made aware of the clause when they took out their mortgage.

But the government-owned Northern Rock had still not said what it would do, with its rate staying firm at 5.84 per cent.

Mr Brown said: "I think banks should really pass on the interest rate cut. We are talking to the banks. Last time there was a cut we had to speak to them before it was passed on and we will be speaking to them again."

And Alistair Darling, the Chancellor, said: "It really is important that we see these reductions passed on because that is the best way of helping the economy get through this difficult time. A number of the banks have said they are going to pass on the reductions to businesses and homeowners. I want to see them do more."

So far, seven out of ten leading lenders have agreed to pass on savings but their standard variable rates are still well above the Bank of England's base rate.

Just hours after the Prime Minister's remarks, RBS said it would pass on some of the cut to customers, dropping its standard variable rate by 0.75 per cent to 4.44 per cent.

But research from MoneyFacts, the financial publisher, showed banks making much bigger margins on fixed-rate mortgages than a month ago.

Even before Thursday's rate cut, the average margin was 2.86 per cent, whereas at the start of last month it was 2 per cent.

Borrowers who have less than 25 per cent equity are offered deals at 6 per cent or higher. This will deter first-time buyers – who are crucial for kick-starting the beleaguered property market. And the cut in the base rate will make it even harder for them to save towards a deposit.

Ray Boulger, of broker John Charcol, said: "If anything, the rate cut could make the situation worse. The amount of money being deposited with banks has been falling as the interest rates come down. That reduces the amount of money available to offer as mortgages."

The rate cut has led to warnings that pensioners and savers would be punished.

Ros Altman, a former adviser to Tony Blair, said: "Policymakers are ignoring millions of responsible citizens who saved for their future, in the hope that rate cuts might free up credit markets and banks might lend more.

"This is a dangerously unbalanced policy mix."

Fresh protest over HBOS deal by Which?

EUROPE'S biggest consumer watchdog has thrown its weight behind a last-ditch attempt to stop Lloyds TSB taking over HBOS.

The support from Which? – which has a 700,000-strong membership – came as Lloyds TSB confirmed it would keep the Bank of Scotland brand but eventually review the branch network north of the Border.

In a letter to the Competition Appeals Tribunal, Peter Vicary-Smith, the chief executive of Which?, said he feared the merger could set a precedent and have serious consequences for fair competition.

"We consider that the concerns this raises affect consumers across the UK, not just those in Scotland," he said.

He added that while Which? understood that financial stability was the top objective of the government, "we have some concerns about the way in which the Secretary of State (Lord Mandelson] made his decision in this case and the potential ramifications this may have for the future use of the legislation".

Alistair Darling, the Chancellor, defended the government's stance on the merger yesterday.

"I have always made it clear that if another offer were to come along, provided it had a credible plan and the funding to go with it, we would look at it," he said. "No other proposal has been made, so the decision lies very much in the hands of the (HBOS] shareholders next week."

Archie Kane, Lloyds TSB's executive director of insurance and investments, yesterday tried to placate the fears of Scottish shareholders, saying that the Bank of Scotland would keep its identity in Scotland under the proposed deal.

As The Scotsman reported previously, the bank will keep its headquarters on the Mound, but there are doubts the Bank of Scotland's identity will exist beyond Scotland.

Mr Kane insisted the group would have a "very strong presence" in Scotland, adding: "Bank of Scotland is an iconic brand which we look forward to developing even more in the years to come. We are also very focused on integrating Bank of Scotland and Lloyds TSB Scotland businesses.

"Lloyds Banking Group will have the largest branch network in Scotland."