Bermuda's banks are holding their variable mortgage rates steady despite the fact that the US central bank has lowered its rates three times since September.

The US Federal Reserve has cut its federal funds rate from 5.25 percent to 4.25 percent over the past three months.

An equivalent one percent fall in Bermuda mortgage rates could knock more than $300 off the monthly repayments of a homeowner with a typical $500,000, 30-year variable rate mortgage. But the Island's lenders have not followed the Fed's lead, to the frustration of some customers. One Bank of Bermuda mortgage holder, who did not wish to be named, contacted this newspaper to say: "I purchased my place in 2003. I've had five rate increases since then. The US central bank has been cutting its rates for a few months, but there's no sign of local banks following suit.

"I've found that the bank has been really prompt in issuing letters when the rates go up. Each increase has added about $100 a month to my mortgage payments.

"Of course, I understood when I signed the agreement for a variable rate mortgage that the interest rate could go up and down. But the banks can't have it both ways."

A spokeswoman for financial regulators the Bermuda Monetary Authority (BMA) said interest rate changes were essentially decided by lenders and market forces.

"There is no regulation and no legislation that relates to setting rates," the BMA spokeswoman said. She added that historically, there had tended to be a lag between rate changes in the US and changes at Bermuda banks ¿ whether up or down.

The BMA itself has no power to set rates.

Three of the Island's major lenders yesterday pointed out that there is no correlation between US and Bermuda rates and that decisions to change interest rates are based on local rather than international criteria.

A spokesman for Butterfield Bank said the Bank kept both its Bermuda dollar deposit and lending rates under constant review.

"These are established and periodically adjusted based on a number of factors including demand for loans and mortgages in Bermuda dollars and local economic conditions, such as the current rate of inflation," the spokesman said.

Annual inflation is at a 19-year high rate of 4.8 percent, as Government figures revealed this week. Lowering interest rates would likely fuel rising prices by making credit more affordable.

"Deposit rates are set at levels that will help attract Bermuda dollar deposits which the Bank uses to fund Bermuda dollar loans. It is worth noting that Bermuda's deposit rates are currently more attractive than those in the US.

"There is no direct correlation between US rates and rates in Bermuda. Factors influencing the recent lowering of interest rates by the Federal Reserve, such as current economic and credit conditions, are unique to the US."

Capital G Bank said the Fed's rate cut would lead to lower borrowing costs for Bermudians who have borrowed funds in US dollars and will likely lower income for US dollar saver accounts.

"For those who borrow or save in Bermuda dollars, lower US rates will often lead to lower rates here on the Island, although not necessarily in lock step," a Capital G Bank spokesman said.

"Capital G assesses a number of factors before responding to changes in US dollar rates, including local competitive pressures and liquidity in international markets.

"Capital G is mindful of the effects on both borrowing and investing customers and we strive for a fair and balanced approach at all times.

"The recent cut by the Federal Reserve was the third reduction in the Fed Funds rate since September and would lead one to suspect that we might see lower Bermuda dollar rates."

Many analysts are expecting the US Federal Reserve to cut rates again, when its board convenes at the end of this month, as it tries to cope with the ongoing mortgage crisis in the US. Millions of Americans are struggling to meet home loan repayments. Defaults and foreclosures are rife, in the midst of a slump in property values.