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Abbey

Abbey fails to pass on Bank rate cut

10-October-2008, By Becca Talbot becca.talbot@consumerchoices.co.uk

Despite half a percentage point cut in the Bank of England interest rate, Abbey confirmed yesterday it is keeping the interest rate on its tracker mortgages for new borrowers unchanged.

Abbey (www.abbey.co.uk) announced yesterday it is raising interest rates on its popular “tracker” mortgage deals by half a percentage point, erasing the benefit of Wednesday’s emergency cut in the cost of borrowing by the Bank of England.

Trackers mortgages, which are tied to the Bank of England’s base rate, have become increasingly popular in recent months as the expectation grew that the Bank would cut the cost of borrowing. However, in recent days lenders have been raising rates and pulling deals to ensure their profit margins don’t suffer from a cut in the base rate.

Cheltenham & Gloucester also pulled its most competitive tracker deals for borrowers with a small deposit, and the Yorkshire Building Society pulled all its trackers at the beginning of the week and does not plan on relaunching them.

The news will disappoint potential new borrowers who had been hoping to see the cost of home loans drop after the Bank of England’s unexpected cut in the Bank rate by half a percentage point to 4.5%.

Britain’s second biggest mortgage lender, Abbey, has blamed the seizure in the money markets and wholesale costs for its decision.

An Abbey spokesman said: “Following the announcement that the Bank of England has lowered the base rate by 0.50 percentage points, as of this Friday Abbey is maintaining rates on its range of trackers for new customers. This is a reflection that the short term variable funding costs have not reduced.”

On Wednesday the Government announced a £50 billion bailout plan for Britain’s biggest banks in an attempt to ease the seizure in money markets.

The move is another blow the already falling mortgage market, with the number of mortgage products available to new borrowers reaching an all time low since the start of the credit crunch, according to Moneyfacts.

The financial information service reported that on Friday there were just 3,281 mortgages available for new borrowers, compared with 10,726 a year ago. At the height of the market in July 2007, there were 13,027 offers.

Existing Abbey tracker customers will be unaffected by the decision, as they will automatically have the rate cut passed on, the mortgage lender stated.

Darren Cook of Moneyfacts said the decrease in available mortgage was the result of the demise of deals for people offering a deposit of just 5% or 10%.

“Choice may be reducing, but there are still enough products out there for borrowers to try and find a suitable deal that suits individual circumstances,” he said.

“The difficulties lie in the lack of liquidity within the market and providers having no appetite or being unable to lend on a larger scale. In essence, the price list shows that mortgages are getting a little cheaper, but the stock rooms are currently nearly empty,” he concluded.

It’s not all bad news however; over four million homeowners with tracker mortgages will benefit from the Bank of England cut. A borrower with a £150,000 mortgage will see interest-only repayments fall by £63 a month.

Halifax and Bank of Scotland, owned by HBOS, RBS, NatWest, Lloyds TSB and Woolwich have also announced that they will pass on the full rate cut to homeowners who are on their SVR rates. The new rates will come into force on 1st November 2008.

Chris Eagle, commercial manager at CreditChoices.co.uk said: “It is disappointing that some of the banks are not passing on the base rate cut; this is further bad news for first time buyers and people who are struggling with their mortgages”

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