Tracker mortgage rates hit new high
Tracker mortgage rates for new borrowers have soared to a seven-and-a-half-year high during October despite interest rates falling during the month, new figures show.
The average cost of a tracker mortgage for someone with a 25% deposit jumped to 6.84% during the month, up from 6.12% in September, according to the Bank of England.
The increase came despite the Monetary Policy Committee reducing interest rates by 0.5% during the month, meaning that the margin the loans charged above base rate more than doubled from 1.12% in September to 2.34%.
The figures show that while lenders have little choice but to pass on base rate reduction to existing tracker customers, they are taking the opportunity of rate cuts to increase their margins on new business.
Lenders scrambled to withdraw their tracker mortgages following last week's surprise 1.5% base rate reduction, with 33 lenders pulling their entire range of the products for repricing.
So far, only Abbey has relaunched the loans, saying that it will be passing on 1.45% of the reduction to borrowers with a 40% deposit.
Ray Boulger, senior technical manager at John Charcol, said that some of the increase in the margin above base rate on new loans was because some lenders do not reduce tracker rates for new customers until the first day of the month after the cut, in line with reductions for existing customers.
But he added that a lot of the increase was down to the turmoil in the money markets caused by the collapse of US investment bank Lehman Brothers in September.
He said: "The biggest reason for the increase is that in mid-September when Lehmans collapsed, money markets tightened.
"Until mid-September we had seen lenders competing for business, but after mid-September they withdrew their products very rapidly and replaced them with ones with higher margins."
