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Lenders heed calls for rate cuts

NEWS REPORT FROM BBC NEWS WEBSITE FRIDAY 7TH NOVEMBER The main mortgage lenders have started to respond to the government's demand that they should cut their mortgage lending rates. The Nationwide, HBOS, the RBS/NatWest group and nationalised Northern Rock will cut their main variable lending rates by the full 1.5% on 1 December. Lloyds TSB and the Abbey announced similar steps on Thursday. Prime Minister Gordon Brown had urged lenders to pass on the Bank of England's 1.5% cut in its Bank Rate. The Bank of England's official rate was cut from 4.5% to 3% on Thursday. The Libor rate at which banks lend to each other has also fallen since the cut. SEE HOW THE MAJOR LENDERS HAVE REACTED In response the Nationwide is cutting its base mortgage rate by 1.5%, from 6.19% to 4.69%, while RBS/NatWest is cutting its standard variable rate (SVR) by the same amount, from from 6.69% to 5.19%. The HBOS SVR is coming down from 6.50% to 5.00%. The Nationwide, explaining its decision, said its borrowers would be 'substantially better off'. 'This is the right and fair course of action for Nationwide to take for all our borrowers at what is a very challenging time for everyone in the UK,' said the society's chief executive Graham Beale. Any changes to its savers' rates will be announced later. PRESSURE Prime Minister Gordon Brown welcomed the banks' decisions. '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,' he said. The lenders had come under intense political and media pressure to pass on the Bank's decision to their customers as swiftly as possible, and in full. Chancellor Alistair Darling held a breakfast meeting with bank bosses on Friday morning to press the government's case. But the Council of Mortgage Lenders (CML) warned that the precise level of any reductions would be a commercial decision for each individual lender. 'The problem banks have got is that they have limited funds and don't have enough money to give to all the customers who may want them,' Michael Coogan, director general of the CML told the BBC. 'I think over the next few days and weeks we will see that the banks and building societies will move by anywhere between 0.5% and 1.5% - the individual decisions will be on the basis of assessing what they want for their savers as much as what they want for their borrowers,' he added. Almost all tracker mortgages have been withdrawn for new borrowers as lenders consider at what rates to reintroduce them. Lloyds TSB, which owns Cheltenham and Gloucester, has become the first to announce that it is to reduce the cost of fixed-rate deals for new borrowers. Some deals for those offering a deposit of at least 25% will become 0.3 of a percentage point cheaper from Tuesday. DUTY Lloyds TSB, HBOS and Royal Bank of Scotland, which owns NatWest, have taken government cash to strengthen their finances. One problem, lenders say, is that the key to mortgage costs is not the Bank of England's base rate but Libor - the London Interbank Offered Rate - which is the rate at which banks lend to each other. The three-month sterling Libor rate - which has the greatest influence on new tracker mortgages - fell from 5.56% to 4.49% on Friday, its lowest level since the end of 2005. But the rate remains almost one and a half percentage points above the Bank of England's base rate - still well above pre-credit crunch levels. A number of building societies have said they could take weeks to decide whether to pass on the cut. This would be to consider the effect on savers and to monitor Libor.