Variable rate customers with Lloyds TSB and HSBC will benefit from the 1% interest rate cut after the banks announced they will pass it on in full.

The announcement came as no surprise to Lloyds TSB customers as the bank, which also lends under the Cheltenham & Gloucester brand, had already said they would pass on any reductions made by the Bank of England to standard variable rate (SVR) accounts. HSBC made its decision after the Bank announced the cut.

Other lenders have placed their rates under review, but many are not expected to pass on the cut to their SVR customers.

HSBC will reduce its SVR to 4.44% and Lloyds TSB will drops its to 4% as part of its pledge that its SVR will never be more than 2% above the base rate.

Monthly repayments on a typical mortgage of £150,000 will be reduced by around £85 a month if lenders pass on the 1% cut in full, based on a new rate of 4%.

Lloyds TSB will relaunch its fixed-rate mortgages, offering a two-year fixed rate deal of 3.89% for people borrowing up to 75% of their home's value, when they pay a 2.5% arrangement fee.

When the Bank of England reduced interest rates by 1.5% last month 75% of banks failed to pass the full cut on to their SVR customers. The Woolwich did not pass any cut on at all.

Customers of discount and tracker mortgages will also not benefit from the cut, despite the fact that these rates should move up and down in line with the base rate.

It is believed that of the 4.7 million of these mortgages, 600,000 people are on trackers that impose a collar, meaning that when base rates fall below a certain level, they no longer have to pass on the reduction.

Nationwide is one building society that does have a collar, which kicks in at 2.75%, meaning its tracker customers will benefit from only 0.25% of the cut, while the Skipton and Yorkshire Building Societies have one of 3%, meaning borrowers will not see any reduction.

Copyright © Press Association 2008