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No cuts for new tracker mortgages

Tracker mortgages out of step with interest rate cuts

Thursday, 30 October 2008

Writes Seamour Rathore
seamour.rathore@consumerchoices.co.uk

New tracker mortgages are costing homeowners the same as they were a year ago despite UK interest rates which are 1.25% lower.

The figures are a measure of how much more cautious mortgage providers are being about lending money at attractive rates to the public.

Michelle Slade, analyst at Moneyfacts.co.uk said: “Lenders are factoring in a much bigger margin for risk than ever before and as a result mortgage rates remain high.”

The last time the Bank of England (www.bankofengland.co.uk) base rate was 4.5%, borrowers could have got their hands on a two-year tracker at 4.25%. But this week, the most competitive two-year tracker on the market was 5.99%.

Next Thursday, the Bank of England’s Monetary Policy Committee (MPC) will make a decision on interest rates, with many commentators believing that rates will be cut again.

Michelle Slade at Moneyfacts added: “The base rate used to be a major barometer when determining mortgage rates, but it could become an obsolete component of a mortgage if lenders do not pass on cuts.”

Moneyfacts also warned that even if rates are further slashed – some commentators are arguing that they could go as low as 1% or even 0% as the recession digs in – some borrowers with existing tracker mortgages will find the rate cuts have not been passed on. This is because some providers have collared their trackers.

Nationwide (www.nationwide.co.uk) has collared all trackers at 2.75% and even if the base rate falls below that level, the mortgage rate won’t. Similarly Chesham Building Society’s discounted and tracker mortgages are collared at 3.5%.

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