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HIGH STREET banks are already making millions from last week’s interest-rate cut, having sneakily slashed savings rates up to six weeks ahead of the announcement while mortgage rates for some borrowers will not come down until the new year.

Savers now face a second round of reductions, while experts warn that millions of borrowers are unlikely to see their repayments fall by the full quarter point – giving banks’ profits an instant boost.

Abbey, Barclays, NatWest and Lloyds TSB have all hit savers with cuts of up to 0.25 points in recent weeks, but they have yet to announce their mortgage rates. Analysts said it was unusual for so many of the big banks to slash savings rates in anticipation of a rate cut – and have warned savers that they will probably fall again.

The banks will now come under intense pressure to show their hands, as research for The Sunday Times by AWD Chase de Vere, an adviser, showed the rate ploy could make the banks an estimated £26m a month.

The Bank of England last week chopped rates from 5.75% to 5.5% – the first reduction since August 2005. While an estimated 3m borrowers on tracker mortgages benefited immediately because their loans automatically follow Bank rate, another 2.2m pay the lender’s standard variable rate (SVR) and a further 1.2m are on discounts linked to the standard rate.

Lenders have complete discretion over when they cut SVRs, and by how much, and there are growing fears that many will take the opportunity to rebuild their margins in the wake of the global credit crunch.

Sue Hannums of AWD Chase de Vere said: “Many banks have been quietly cutting savings rates over the past few weeks in the hope that we won’t notice when they chop rates again following the latest base-rate move. Add the fact that SVRs are unlikely to come down by the full quarter point, and banks have a great opportunity to boost their margins.”

Halifax, Britain’s biggest lender, was quick off the mark last week in announcing its SVR would go down by the full quarter point, from 7.75% to 7.5% – though not until January 1.

Halifax savers, meanwhile, have already had rates slashed by up to 0.25 percentage points and the chances are they will fall again after the bank refused to rule out further cuts.

Nationwide is the only other major lender to have moved with a full quarter-point reduction in its SVR.

Ray Boulger at John Charcol, a broker, said: “I think the number of lenders who pass on the full rate cut will be in the minority, and I expect a few will not cut their SVRs at all.”

Egg set the tone when it reduced its SVR by just 0.15 points last week, from 6.94% to 6.79%, from January 1.

Here we highlight the winners and losers from the latest rate cut.

Winners

Borrowers with tracker mortgages

Tracker loans are set at a fixed margin to Bank rate so lenders have to reduce them by the full quarter point.

Your interest is immediately calculated at the lower rate, though you won’t see the benefit until your next monthly repayment. Someone with a £200,000 interest-only tracker that is equal to Bank rate, will see their monthly payments fall from £958 to £917 – saving them £492 a year.

With further interest-rate cuts expected next year, anyone wanting a variable-rate deal is advised to go for a tracker rather than a discount (see story below), to ensure that they benefit in full from the lower rates.

Most offset mortgages, which allow you to set your savings against your borrowings to reduce repayments, are tracker loans.

Losers

Borrowers with discounts

Discounts move in line with the lender’s SVR rather than Bank rate. Lenders therefore have complete discretion over whether you benefit from lower rates.

Lenders that still offer discounts include Alliance & Leicester, Bristol & West, and Newcastle and Coventry building societies. Brokers said that these were the most likely to withhold rate cuts. Standard Life Bank will also be under the spotlight because it increased its SVR last month, even though Bank rate had not then changed.

Borrowers looking for a new deal

About 1.4m borrowers are due to come off fixed-rate deals over the next year and the prognosis is not good.

While rates for existing tracker mortgages are coming down, rates on new trackers have been heading up as banks have been hit by the turmoil in the wholesale markets, where they raise funds for mortgages.

In June, Direct Line had the leading two-year tracker at 0.28 points below Bank rate – 5.22% – but the best you can get now is from Yorkshire at just 0.06 points below Bank rate – or 5.44%.

Simon Tyler at Chase de Vere Mortgage Management, a broker, said: “If you need to remortgage in the first quarter of next year, I would apply now. Mortgage offers are normally valid for three months, and getting a mortgage could get more difficult.”

Borrowers without a clean credit file

Lenders are already becoming more cautious about whom they will lend to – even with mainstream borrowers. Melanie Bien at Savills Private Finance, a broker, said: “Lenders are looking more closely at people’s credit scores and are less willing to lend to those with small deposits. We are also seeing a growing reluctance to lend to those wanting to borrow more than £1m unless they have a deposit of at least 20%.”

Martin Punt and Natalie Kinchin have already been hit by the credit crunch. They recently remortgaged their two-bedroom flat in Westcliff-on-Sea, Essex, but their first application was turned down.

Punt, 29, a marketing manager, said: “I have no debts other than my mortgage, butI missed some credit-card payments when I was 18 and some lenders are obviously tough on this. Alliance & Leicester turned us down, although Abbey accepted us.”

Loyalty won’t pay for savers

SAVERS have been warned there will be no reward for loyalty in the coming months.

Banks are expected to slash rates for existing savers following the Bank of England’s move, but they still need to pull in money to compensate for a freeze in wholesale markets, where they normally raise funds.

New savers can therefore expect some eye-catching new deals, while loyal savers are left languishing with paltry rates.

Abbey cut the interest on many of its savings account by up to 0.25 percentage points last Thursday.

The rate on its E-Saver with a 12-month bonus was slashed by 0.25 on balances below £200,000. However, on the same day the bank launched a new one-year bond paying a market-leading 7% – 1.5 percentage points higher than Bank rate.

If providers will be launching new deals, is now a good time to fix my savings?

With so much activity in the savings markets, it may be tempting to wait and see if rates climb higher. However, advisers recommend fixing now, rather than waiting.

Sue Hannums at AWD Chase de Vere said: “What we are seeing at the moment is highly unusual and what happens next to fixed rates is anyone’s guess. A rate of 6.5% to 7% is a fantastic deal, so I would grab them while you can – they won’t be around for long.”

Abbey’s one-year bond at 7% is only available for balances above £50,000, but Bradford & Bingley (B&B) is launching a one-year bond on Wednesday, with a minimum deposit of only £1,000. The rate will be 6.8%.

If you do not want to lock your money away for a year, National Counties has a six-month bond at 6.91%.

What about easy-access accounts?

If you would prefer to retain access to your savings, you can still get a great rate.

B&B’s My Time Postal account will be paying 6.45% on balances of £1,000 or more from Wednesday, while Newcastle building society’s Newcastlenet account is paying 6.43%. The minimum deposit on this account is £250.

However, if you apply for a variable account in the next week or two, the advertised rate is unlikely to factor in last week’s rate reduction, so it will probably fall next month.