Some lenders have more than doubled their margins on tracker mortgages in response to the surprise 1.5% cut to the base rate.
Following last week’s announcement, the tracker mortgage market essentially closed its doors to new business as more than 30 lenders pulled their tracker range for ‘re-pricing’ purposes.
As the deals started trickling back to the market this week, homeowners have been dismayed to learn that a large chunk of that 1.5% cut is going straight in the pocket of lenders.
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Big lenders, even bigger margins
Halifax has reintroduced its two-year tracker deals for borrowers with a 25% deposit at a rate of 5.14%, or 2.14% above base rate. Just one month earlier, and a similar tracker at Halifax was just 1.04% above base, meaning the nation’s largest lender has more than doubled its margins.
And it is by no means alone in doing so. Lloyds TSB, which also lends under the Cheltenham & Gloucester brand, has increased its tracker margins by between 0.6% and 0.7%, meaning a homeowner with a 25% deposit can now expect to pay 2.09% above base at the lender.
Abbey’s new two year tracker is now 1.99% above base, compared to 1.29% last week, and the list goes on.
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Doesn’t mean tracker are all bad
It is quite hard to believe that just a few weeks ago lenders were charging as little as 0.5% above the base rate.
This doesn’t mean all tracker deals now offer terrible value and should be avoided like the plague, though. It’s worth keeping in mind that a number of respected economists are predicting rates will fall as low as 1% next year. That means even someone paying 2% above base will still be getting a very good deal.
As a practical example, a homeowner with a £150,000 mortgage over 25 years who takes out a tracker at 2% above base will be paying £877 at the moment. Should rates fall as low as predicted above, they will be paying just £711 – that’s an annual saving of nearly £2,000. So clearly it’s something worth thinking about.
As always, trackers are only for people with a bit of financial flexibility. If you would not be able to afford it if rates were to suddenly rise instead, then you will be better off opting for the security of a fixed rate deal instead.
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