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Lloyds TSB today said it would pass on the 1.5% cut in interest rates to borrowers with loans linked to its standard variable rate (SVR), but customers of other lenders have been warned their rates may not be cut.
The bank said it would reduce its SVR from 6.5% to 5% with effect from December 1, in a move that will benefit borrowers with mortgages from both the bank and its lending arm Cheltenham & Gloucester. A homeowner with a £150,000 mortgage who is paying the SVR will see their monthly repayments fall by £138.
Lloyds TSB, which is set to take over rival lender HBOS, had little choice but to pass on the cut as its terms and conditions promise that its SVR will never be more than 2% above the Bank of England base rate.
Lenders without such a commitment will be able to decide independently if, and by how much, they reduce their rates following today's decision, although they will have to pass on the reduction to borrowers with tracker mortgages.
HSBC, Nationwide, Barclays and Royal Bank of Scotland all said they were reviewing their SVRs. HSBC added that only 3% of its borrowers were paying rates linked to its SVR.
There was no immediate comment from HBOS, the country's biggest mortgage lender, but together with RBS it will be under huge pressure to pass on the full effect of the rate cut.
The Building Societies Association (BSA) said its members would not necessarily be reducing mortgage rates in the coming days.
Its director general, Adrian Coles, said: "Building societies will do all they can to ensure that the cost of mortgage borrowing is as low as possible. However, the bank rate is just one of the issues that they have to consider."
Long-term benefits
The Council of Mortgage Lenders yesterday warned that borrowers should not expect any rate cut to be passed on by lenders, saying inter-bank borrowing costs remained high.
However, the group's director general, Michael Coogan, said the size of the cut meant borrowers could benefit in the long run.
"This is a strong and decisive move by the Bank of England. They have grasped the nettle in a worsening recession environment.
"What is important is how this feeds through to lenders' borrowing costs - and lenders will need to balance the interests of savers, as well - but such a sharp downward movement provides more room for lower borrowing costs more quickly."
Consumer groups, brokers and estate agents have been united in calling for lenders to reduce costs.
The consumer group Which? said a failure to pass on the cut would be "another slap in the face for mortgage customers".
Its personal finance campaigns manager, Doug Taylor, said: "All of the banks, particularly those who have benefited from taxpayers' money, should be passing on any base rate cuts in full to their customers."
Eamonn Rice, chief executive of online mortgage broker mform.co.uk, said lenders should "do the decent thing" and pass on cut.
"Money markets and Libor are pointing to increased confidence and it beggars belief that the base rate can be cut by 2% inside a month and mortgage costs can barely move," he said.
"The bail-out deal with banks supposedly had a condition that they should make funds available to mortgage customers and small businesses. Taxpayers are entitled to wonder when the banks are going to fulfil their part of the bargain."
Not all borrowers will need to wait for their lender's decision. Around 50% of UK borrowers are currently on a fixed-rate mortgage so their repayments will stay the same until the end of their deal.
A further 40% are on variable rate deals, some of which are linked to the base rate, while the remaining 10% are paying a lender's SVR.
Those on tracker deals will benefit from a cut, although some lenders put a limit on how low rates will go, which means not all customers will receive a full 1.5% cut.
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