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Britain's banks finally caved in to growing public and political pressure yesterday and agreed to pass on to their customers the full 1.5 percentage point cut in interest rates.
After an early morning meeting with the chancellor, Alistair Darling, the UK's biggest lenders yesterday came out one by one and said they would reduce monthly payments for customers with variable rate mortgages by the full 1.5-point cut.
Nationwide, the UK's biggest building society, began, soon followed by Britain's biggest lender, the Halifax, and NatWest/Royal Bank of Scotland group. By mid afternoon each of the banks that had sought help from the government's £37bn bail-out had agreed to lower their rates. Late last night the Treasury-owned Northern Rock also bowed to the inevitable and did the same.
The two banks which have steadfastly refused the Treasury's help - Barclays and HSBC - were the only big lenders last night not to have revealed whether they would pass on the full rate cut to borrowers.
Both Abbey and Lloyds TSB cut their standard variable rate mortgage rates within hours of the monetary policy committee's surprise cut in the base rate on Thursday. In all cases the rate changes will feed through to lower repayments in time for Christmas; most by December 1.
The prime minister, Gordon Brown, welcomed the banks' decision.
Speaking in Brussels, Brown said: "Yesterday, we saw decisive action on interest rates from the Bank of England and the European Central Bank, and I welcome the fact that a number of British banks have now decided to pass on the interest rate cut to customers, to families and to businesses."
Around 1.7 million UK households have monthly mortgage payments pegged in some way to their lender's standard variable rate (SVR). After last month's half-point rate reduction half the lenders opted not to reduce their SVR, and many, including the nationalised Northern Rock, passed on only a fraction of the reduction.
Many homeowners feared the same would happen again, particularly after some bank executives claimed they were unable to cut rates further as the cost of funding mortgages remained high.
But the three-month Libor rate, the inter-bank borrowing rate on which lenders base their mortgages, dropped sharply yesterday by one point to 4.49%.
Nationwide said yesterday's move would reduce payments for a £100,000 interest-only mortgage by £125 a month. Graham Beale, Nationwide's chief executive, summed up the collective mood of the banks: "This is the right and fair course of action for Nationwide to take for all our borrowers at what is a very challenging time for everyone in the UK.
"Our borrowers, who already benefit from one of the lowest standard variable rates on the high street, will see their rates fall dramatically and will be substantially better off."
Ray Boulger of the mortgage broker John Charcol said political pressure had undoubtedly played a part in yesterday's moves. "There was huge pressure on the banks to lower rates. However they were also helped by the Libor rate. Today's fall was particularly welcome and I'd expect to see some more attractive mortgage rates being launched next week."
However, it wasn't all good news. Britannia, Standard Life Bank and First National heaped misery on first time buyers when they pulled what were the last remaining tracker mortgages. "The tracker market has all but disappeared in the space of 24 hours, which is almost unheard of. It's been an extraordinary couple of days," said David Hollingworth at rival brokers London & Country.
While yesterday's developments were good news for existing borrowers, savers fared less well. Almost all the fixed-rate savings products that had been offering returns of up to 7% were either pulled or re-priced downwards. Anglo Irish Bank pulled its nine-month bonds, and cut its previously popular one- and two-year fixed-rate savings bonds by 1.5 points. Last night Nationwide said it was reducing interest rates on all its fixed-rate savings bonds from today.
However, the little known Close Bros continued to offer its one-year 7% bonds to those with at least £10,000 to invest. "These will be still available until Monday and at the moment we are being inundated by savers trying to grab the last decent rate out there," said a spokesman.
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