A trio of top lenders passed on the Bank of England's 1.5 percentage point rate cut to their variable rate mortgage customers on Friday after the government urged them to keep lending to help stave off a recession.
By Myles Neligan
HBOS, building society Nationwide and Royal Bank of Scotland, owner of NatWest, all passed on the rate cut in full. They joined Lloyds TSB and Abbey, owned by Spain's Santander, who cut rates on Thursday.
Bank chiefs were called to a meeting earlier on Friday with UK Chancellor Alistair Darling, where he urged them to pass on the base rate reductions to help get the economy moving again.
There was broad agreement at the meeting to pass on the cuts to households and small businesses, a person at one of the banks told Reuters.
Just two major banks -- HSBC and Barclays -- have yet to follow suit. They said they were still reviewing the BoE's rate decision on Friday.
Neither HSBC nor Barclays is taking cash from the government's bailout of UK banks. The rescue plan will see the government buying stakes of up to 57 percent in RBS and 43 percent in a combined Lloyds and HBOS.
Interbank borrowing costs fell sharply on Friday to help the banks follow the base rate move. The London Interbank Offered Rate (Libor) for three month sterling fell to 4.5 percent from 5.56 percent.
Libor sets the cost of borrowing between banks, and is a more significant influence on banks' funding costs than the base rate. Libor has held far above the base rate since the onset of the credit crunch, making it difficult for lenders to respond to cuts by the central bank.
The BoE's rate cut on Thursday was the biggest since the central bank gained independence in 1997, and took the base rate to 3 percent, its lowest level in 54 years.
About 10 percent of mortgage borrowers are on standard variable rates, according to figures from the Council of Mortgage Lenders, with half on fixed rate deals, and the remaining 40 percent on rates that track the BoE base rate.
"About 40 percent of mortgage and corporate lending is fixed rate, on our estimates, so there won't be any immediate impact from recent rate cuts until those customers refinance," Jonathan Pierce, analyst at Credit Suisse, said in a note.
"At that time it will help, but we think about it more as curbing the uplift in payments that would otherwise have been experienced rather than allowing a big fall in monthly payments," Pierce added.
(Additional reporting by Steve Slater, Sumeet Desai and Lorraine Turner; Editing by David Cowell)
LONDON (Reuters)