Whilst the Bank of England has slashed interest rates by 4.5% since October, taking the base rate from 5.0 per cent to 0.5 per cent, lenders have failed to pass the cuts on in full to their existing customers, despite the Government urging them to do so.
Since February 2009, for example, the base rate has fallen by 1% but the average standard variable rate (SVR) has fallen by just 0.36 per cent, and the margin between the base rate and the average SVR has increased 0.64 per cent. In February this year SVRs were on average 3.42% above the base rate, but today it stands at 4.06 per cent above the base rate.
Interestingly, over the same period providers have passed on most of the base rate cuts to savers: the average best buy easy access savings account rate has fallen by 0.95%. Providers have effectively widened margins by passing on almost all of the cuts to savers but less of the cuts to borrowers. In fact borrowers on "average SVR" are now paying nearly a full 2% more than the average best buy savings account, compared to 1.4% earlier this year.
What's more the reduction in "average SVRs" masks a large disparity between lenders. There is now a 3% difference between the lowest and highest rate SVR products, which translates to £254.22 per month on a £150,000 mortgage. For example Nationwide Building Society's SVR now stands at 2.50%, whilst Chelsea's is 5.79%.
