Lloyds TSB to pass on rate cut to borrowers

LONDON (Reuters) - Lloyds TSB said on Thursday it would cut its standard variable rate on mortgages to 5 percent from 6.5 percent after the Bank of England slashed interest rates by 150 basis points to 3 percent.

A Lloyds TSB spokeswoman confirmed its Cheltenham & Gloucester (C&G) mortgage lending unit would stick to an earlier pledge to pass on the full impact of any rate cut.

Among other lenders HSBC, Barclays, Royal Bank of Scotland, HBOS, Nationwide, Abbey, Northern Rock and Alliance & Leicester all said their interest rates were under review.

Abbey, owned by Spain’s Banco Santander, on Wednesday hiked the rate for new customers taking out its tracker mortgages by 0.5 percentage points.

Several of the banks said they were unlikely to make a decision on future lending rates on Thursday and would watch to see how interbank rates react.

“It’s extraordinary circumstances and I don’t think anyone saw this (1.5 percent cut) coming,” a person at one of the major banks said.

The Council of Mortgage Lenders warned before the Bank decision that lenders would struggle to pass on any rate cut because of the ongoing freeze in lending between banks which has driven up the cost of bank funding.

Despite those difficulties lenders have faced a barrage of media criticism for raising their rates on some mortgage products, particularly given that one of the conditions attached to a multi-billion pound state bailout of the banks required participants to maintain the availability of lending.

Lloyds TSB, in the middle of buying rival HBOS, is among those to sign up to the scheme and the government could end up owning as much as 43.5 percent of the combined group if it makes full use of the 13 billion pounds of state money on offer.

About half of the country’s 11.7 million mortgages are on fixed rates, the CML estimated. Less than 10 percent are on standard variable rates and about 40 percent are on tracker or discounted variable rates, not all linked to base rates.

Reporting by Myles Neligan, Steve Slater and Lorraine Turner, writing by Paul Hoskins; Editing by David Cowell