Mortgage borrowers are being urged to sign up to existing tracker deals quickly after some of the best offers were withdrawn from the market this week.
Lenders reacted quickly to the Bank of England’s decision on Wednesday to cut the base rate to 4.5 per cent by removing a number of attractively-priced tracker rate mortgage products.
Following the announcement, Halifax, Standard Life and Cheltenham & Gloucester all withdrew existing tracker mortgages. Earlier in the week, Woolwich, Yorkshire Building Society and Abbey amended their tracker rate offers.
The best variable tracker rate currently on offer for a remortgage is 5.44 per cent from HSBC, with a fee of £499, according to Moneyfacts.co.uk.
Those already on a tracker mortgage will have reaped the instant benefits of the rate fall.
A borrower on a typical £150,000 tracker mortgage will now be more than £40 a month better off, according to moneysupermarket.com.
Brokers say banks are under pressure to increase the margins between the cost of funds and what they charge on mortgages and this is why tracker deals are becoming more expensive.
The difference between the base rate and Libor, the rate at which banks lend to each other, has remained stubbornly high, meaning banks are paying a premium to obtain money to lend to consumers.
Until this rate comes down, lenders will struggle to offer cheap mortgage deals, says Ann Robinson at uSwitch.com. However fixed rates are expected to fall, albeit at a slow pace.
Melanie Bien, director at Savills Private Finance, says the gap between the average fixed-rate deal and the base rate was expected to narrow. But she warned homeowners not to expect a full 50 basis point fall. The best two-year fixed-rate deal currently available is Market Harborough’s 5.49 per cent which carries a fee of £595.
David Hollingworth at London & Country Mortgages said the change to the interest rate should make the mortgage market more stable.
Fluctuating swap rates, which indicate the movement of fixed mortgage rates, have led to a number of fixed-rate increases in the past two weeks after a period in which they appeared to be heading down.
Now that swap rates have come down to under 5 per cent, brokers expect fixed rates, both short and long term, to fall.
However, those seeking to borrow more than 75 per cent of the value of their property will still find it difficult to get a deal. While the interest rate cut is expected to lead to lower mortgage rates, it is unlikely to make banks more willing to loosen lending criteria, says Ray Boulger, senior technical manager at John Charcol, the broker.
Following the departure of buy-to-let mortgage lender Bradford & Bingley from the market, a number of other providers, including Bristol & West Mortgages, Intelligent Finance and Newcastle Building Society reduced their range of mortgages, particularly subprime, self certification and high loan to value products.
Those with low levels of equity are already paying a premium of around 0.75 per cent and are struggling to find deals that come close to the cheap short-term fixed rates available two years ago.
However, those who wish to secure their mortgage repayments over the long term are being targeted by providers. Abbey has lowered rates on its five-year fixed-rate mortgages from 5.89 per cent to 5.79 per cent and also cut its fees by more than £500 to £995.
