Date:6 November 2008 I Comments: 6 I Views:9,160

In the news this morning there was debate over the anticipated Bank of England Base Rate change.

Many were calling for a 0.5% reduction while other specialists suggested something more drastic like a 1% reduction was needed.

There was fear however that a reduction of as much as 1% might scare the markets because if many were calling for 0.5% but the Bank cut them by 1% then what does the MPC (Monetary Policy Committee – responsible for setting the base rate) know that the rest of us don’t…?

So a drastic reduction of 1.5% suggests ‘there may be trouble ahead…’

This shock reduction is having an immediate effect on mortgage lenders and consequently the consumer.

In the last 2 hours since the announcement was made to reduce the base rate by 1.5% a plethora of mortgage lenders have immediately withdrawn their tracker rate mortgage products.

The Mortgage Works (a subsidiary of Nationwide), Alliance & Leicester, Skipton and Woolwich have all withdrawn tracker mortgages with no indication they will be replacing them in the near future.

Woolwich have released the following statement, “Following the unprecedented Base Rate announcement today and the withdrawal of competitors from the tracker market, we are temporarily but immediately withdrawing all of our Tracker and Offset products from sale.”

This is a stark contrast to the state of the mortgage market just 5 months ago when it was the turn of the cheap fixed rate mortgage to be threatened with extinction.

Borrowers now have access to Fixed rate offers as low as 5.35% whereas Tracker mortgage have been slowly creeping up in line with base rate reductions until today.

So is this the end of the Tracker mortgage? Or will lenders be issuing new products in the near future?

In order for Tracker mortgages to be attractive there needs to be stability in the market coupled with the possibility of interest rate reductions.

We are currently experiencing unusual turmoil in the markets and while rates are dropping at the moment there is no certainty they will remain low.

Fixed rates are now available in the region of 5.5% and if a tracker is to be competitive it could be as much as BBR (Bank Base Rate) + 2.5% (3.0% + 2.5% = 5.5%).

This is all very well while rates are coming down but if the BBR went back up to 5% or above, anyone with a BBR +2.5% tracker would see themselves facing escalating costs.

Category: Mortgages


  1. Nationwide follow suit!

    “In response to current market conditions we will be withdrawing all tracker products with effect from 5pm today and will not be replacing them.”

  2. Birmingham Midshires and Halifax have now joined the party with Halifax withdrawing products but saying they will review their trackers next week…

  3. Karl Barnes

    Well the last week has seen several interesting developments in the mortgage world.

    Firstly, the Bank of England has slashed the base rate by 1.5%, meaning the base rate is now only 3%.

    This should be particularly beneficial for anyone currently on a tracker but is unlikely to have a direct effect on new rates. However many lenders have passed on this cut in the form of a reduction in their Standard Variable Rates.

    Secondly, as a result of the base rate cut, the 3 month LIBOR rate has been cut by 1%, now sitting at just below 4.5%.

    The LIBOR rate is the rate at which banks lend to each other and will have a direct effect on the costs to the banks of obtaining funds, and therefore enable them to reduce mortgage rates.

    As a result of the above, nearly all tracker rates have been withdrawn from the market to be repriced. The next week or so should be interesting as new rates gradually begin to appear again.

    But what does this mean to the individual who may be about to remortgage?

    Well, two things.

    Firstly, the rate that you will revert to when your current deal comes to an end, the lenders Standard Variable Rate(SVR,)will probably be much lower that it would have been a week ago. This may mean that you are better off sitting on the SVR with your current lender rather than moving elsewhere or taking another deal with them.

    Secondly, we are due to see a lot of new rates coming out which may well be a lot more competitive than you were expecting. So there could be cheaper options out there.

    Also, depending on how rates are repriced, it may be a good time to fix your mortgage rate, although this will depend on your circumstances.

    If you are due to come out of your current deal any time soon, speak to an independent Mortgage broker. They will be able to tell you what the best deals out there are for your circumstances and tell you whether it is worth you moving at all or, as is now often the case, you are better off staying where you are.

  4. At the end of the day banks are a business and they need to make money, although they have been making a lot of money in the past, they aren’t doing so well any more. The inter bank lending rate is still a lot higher than the interest rate it is not practical for them to offer rates at twice what they have to pay. The last thing we need to see is a big bank go under.

  5. It is hilarious the way the government has been urging banks to lend at cheap rates whilst simultaneously urging the to shore up their balance sheets.

    You couldn’t make it up, and yet it seems to quite quickly have become a surreal state of affairs we all accept on the nightly news.

    (I’m not saying I don’t understand these twin forces, just that we’re all currently in an impossible situation because of tensions like this, until the game of ‘chicken’ ends and the banks breath out… and relax).

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