Nationwide and Halifax to pass on full 1.5% rate cut to mortgage customers » Bill Payments » 24dash.com

The UK's largest mortgage lenders vowed today to pass on the interest rate cut in full following pressure from Chancellor Alistair Darling.

A flurry of banks and building societies said they were to drop rates by 1.5% after the Bank of England slashed the base rate yesterday.

The move by lenders came after banking chiefs were hauled in front of the Chancellor and told they must pass on the cut "as soon as possible".

Prime Minister Gordon Brown welcomed the banks' decision to pass rate cuts on to customers.

Speaking in Brussels, Mr Brown said: "Yesterday, we saw decisive action on interest rates from the Bank of England and the European Central Bank, and I welcome the fact that a number of British banks have now decided to pass on the interest rate cut to customers, to families and to businesses."

Among those showing their hand today were Halifax and Nationwide, respectively the UK's largest lender and building society.

Both announced this afternoon that their standard variable rates (SVRs) would be coming down in line with the Bank of England's announcement.

They followed Lloyds TSB and Abbey, both of which had earlier pledged to drop their rates by 1.5%.

Royal Bank of Scotland and Scottish Widows also announced today that they were to reduce the cost of their mortgages.

The cuts will provide some much-needed relief for hard-pressed homeowners, reducing the monthly cost of a typical £150,000 mortgage by £138 to £887.

People who are heavily mortgaged with a £250,000 loan would see their repayments drop by £230 a month, or £2,757 a year.

Today's move by lenders came after the heads of all the main high street lenders were summoned to a breakfast meeting at the Treasury.

At the talks, Mr Darling told bank chiefs to pass on the interest rate cut "as quickly as possible", according to sources.

Other politicians hit out at lenders' unwillingness to lower rates with immediate effect.

John McFall, chairman of the Treasury Select Committee, said banks needed to acknowledge their "social responsibility".

He said: "They are being short-sighted. Given that they have had copious amounts of money from the taxpayer and are fully guaranteed, it must dawn on them that they have a social responsibility as well.

"The pressure on them will be maintained until they acknowledge that responsibility."

And Tory leader David Cameron called on the Government to force nationalised banks - Northern Rock and Bradford & Bingley - to lower SVRs.

The Conservative Party added that other banks and building societies had a duty to drop rates.

But the decision by lenders to reduce rates owes as much to a fall in the key inter-bank lending rate three-month Libor as it does to any political pressure.

Libor, upon which variable rate mortgages are based, fell by around 1% to just under 4.5%, to leave it standing 1.5% above the base rate.

Although still up on its long-term average, it appears the fall in Libor encouraged banks to pass on the reduction in base rates to both standard variable rate and new tracker customers.

Yesterday's decision by the Bank of England to slash the base rate to 3% - its lowest level for more than 50 years - appeared to take the banking sector by surprise.

It resulted in a scramble by institutions to withdraw tracker products, which automatically track the base rate.

Some 33 lenders pulled their entire range of the deals for repricing.

Among the firms withdrawing tracker mortgages for new customers were major groups such as Halifax, Nationwide, Abbey, Barclays' lending arm the Woolwich and Lloyds TSB.

A number of other lenders had previously hiked their tracker rates by up to 0.8% ahead of the Monetary Policy Committee's interest rate announcement.

It is likely to be several days before the products are relaunched, and lenders are expected to take the opportunity to increase their margins, even if they pass on some of the reduction.