Lenders squeeze extra profit before base rate falls
With speculation rife that the Monetary Policy Committee will cut base rate again next week, mortgage lenders have been preparing for the potential increased demand by increasing margins offered on tracker rate mortgages. Denise Harvey, mortgage analyst at Moneyfacts.co.uk investigates.
“In the last two weeks alone, analysis from Moneyfacts.co.uk has revealed that 10 lenders have increased the margins on tracker mortgages by as much as 0.45%.
“Existing tracker customers will be waiting with baited breath for the rate decision next Thursday, knowing their rate will fall in line, but these recent increases will impact prospective new borrowers. Take the example of a mortgage taken out in prior to 17 January with a rate of 6.29% (BBR+0.79%); the same deal is now available at 6.69% (BBR+1.19%). Both rates will change by the same amount at the same time, but the borrower who delayed the decision to take out a tracker deal will always be paying 0.40% more.
“The table below shows the lenders that have increased margins this month.
Date |
Lender |
Change |
7.1.08 |
Yorkshire Bank |
Increased by up to 0.40% |
9.1.08 |
Melton Mowbray BS |
Increased by up to 0.30% |
14.1.08 |
Bradford & Bingley |
Increased by up to 0.45% (majority 0.25%) |
|
Cheltenham and Gloucester |
Selected increased by up to 0.25% |
|
Mortgage Express |
Increased by up to 0.45% |
17.1.08 |
Giraffe Money |
Increased by up to 0.40% |
|
Woolwich |
Selected increased by up to 0.22% |
21.1.08 |
Intelligent Finance |
Selected increased by up to 0.20% |
23.1.08 |
Nationwide |
Increased by up to 0.15% |
24.1.08 |
Abbey |
Selected increased by up to 1.15% |
25.1.08 |
Britannia BS |
Selected increased by 0.15% |
Moneyfacts.co.uk |
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“With the demand for fixed rates dropping and with further base rate reductions expected, variable rates are back in vogue. Variable rates linked to the lenders standard variable rate, typically discounted deals, can be tweaked by the lender at anytime. Variable tracker rates, on the other hand, are linked to Bank base rate. With these products the lender does not have control of the underlying rate and is therefore more likely to tweak margins prior to a base rate cut in order to increase profits.
“The message for any prospective borrower wanting to take advantage of anticipated cuts in base rate by getting a tracker rate mortgage, would be to act quickly, or face paying much higher rates.
“Alternatively, if you prefer the stability of knowing what your monthly payments will be, fixed rates are starting to drop, but still fall short of the reductions we have seen in SWAP rates. The market still has room to fall further, so you may be wise to hold back from fixing in too early.”
Moneyfacts Group
Moneyfacts is the UK’s leading independent provider of personal financial information and our data is used and trusted throughout the financial industry.
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