Halifax defends its 0.25% SVR cut

Halifax has defended its decision not to pass on the full 1% rate cut unveiled by the Monetary Policy Committee yesterday.

Halifax has reduced its SVR 0.25% to 4.75% from 5% with effect from January1.

It says that over 85% of Halifax mortgages are unaffected by this decision.

The lender says it has passed on all of the recent bank base rate reductions to its customers with a standard variable rate mortgage.

These cuts include the 0.5% reduction in October and the 1.5% in November.

It says it carefully reviewed the MPC decision before deciding how much of base rate reduction to pass on and has balanced the interest of its customers with the commercial imperative of managing its business in a sustainable and prudent fashion.

As a mortgage and savings provider, Halifax says it makes a profit through the difference between mortgage and savings rates. As UK interest rates are very low now, the margin between mortgages and savings has compressed. This is a key consideration for any financial institution, particularly at a time when the economic outlook is difficult.

There is also a marked disparity between Bank base rate and the actual cost of wholesale money for banks, including Halifax, despite the recent and welcome government intervention in the markets.

Since September 1 2008, three month LIBOR, the main pricing benchmark for wholesale money, has averaged 5.46%, 1.2% higher than the average Bank base rate of 4.26% over the same period.

Lenders like the Halifax are being charged more for the money they borrow from the market than they are able to charge many of their customers.

A release from the lender says: ” Halifax is mindful of the attention currently being focused on the UK banking system.

“The company believes that the action it is taking today is right and strikes the appropriate balance between the group and its customers at a time when interest rates are historically very low and the economic outlook is difficult.”