Mortgage tracker margins widen after base rate cut

Mortgage lenders are starting to increase their tracker rates despite Wednesday’s decision by the Bank of England (BoE) to reduce base rate by 0.5%. Abbey announced on Friday that they will raise trackers by a full 0.5%, in effect cancelling the reduction for new borrowers only. Other lenders are expected to follow Abbey over the coming weeks.

Many banks rely heavily on the money markets to fund their mortgages and they continue to become more expensive. Three-month LIBOR (the rate at which banks lend to each other) hit 6.28% on Friday, a full 1.78% over the BoE base rate.

Simon Tyler, Managing Director of Chase De Vere Mortgage Management, says: “Mortgage rates are likely to go up in the short term, but there are very attractive deals to be had now. Abbey has a two-year fixed rate at 5.54% for those with a 30% deposit. This mortgage has an £1,499 arrangement fee. Cheltenham and Gloucester has a market leading 5.69% five-year fix for loans of up to 60% loan-to-value and there is a £995 fee.

“Nationwide has two two-year trackers at 5.03% or 5.18%. These are for loans of 60% and 75% loan-to-value and both have a fee of £1,999.

"If you have found and property and are worried about the cost of your mortgage rising, Chase De Vere has a facility with the Nationwide Building Society that allows us to reserve rates for three months. This is a fantastic option to have at a time when we expect rates to increase.”

£50 billion government investment

The £50 billion that the government invested into the markets this week will take some time to have an impact, but Chase De Vere feel this is very positive news and definitely a move in the right direction.