Banks withhold interest-rate cut

Many borrowers have seen very little benefit from the interest rate plunging to virtually zero amid the global economic crisis, according to the latest figures.

An analysis shows that just 29% of mortgage lenders have passed on the full reduction to their standard variable rate (SVR).

And most of those had little choice in the matter, since they had pledged that their rate will never be more than a set percentage above base, which is now at 0.5%.

HSBC, Royal Bank of Scotland/NatWest and nationalised bank Northern Rock are among lenders which have not passed on any of the latest reduction.

Although 80% of providers passed on at least some of December's cut, that proportion fell to 64% in January and 42% in February. A third of all lenders currently have an SVR of 5% or more, double the lowest rates of 2.5%.

The average cost of a new tracker mortgage, which automatically rises and falls in line with the base rate, has also increased during the month, with two-year deals rising from 3.54% to 3.62%, after some of the most competitive loans were withdrawn.

Meanwhile, 14 savings providers have cut their rates by less than the base-rate reduction, and some have pledged not to pass on any of the cut.

Despite this, the average rate paid on a no notice account with a balance of £5,000 is now just 0.66%, with half of these accounts paying a rate of 0.5% or less and 28% paying just 0.1% or less.

Says Moneyfacts analyst Michelle Slade: "With many accounts already paying extremely low rates even before last month's cut, there was not much further many of the providers could go.

"As a result the average savings rate has fallen from 0.83% at the start of March to 0.66% today. Only 11% of savings accounts on the market pay a rate of over 2%."

Most commentators do not expect the base rate to fall further from its current level, and a number of more competitive savings deals have been launched in recent days, including a two-year fixed rate bond paying 4.3% being offered by Close Brothers.