Tracker deals returning to market

The Bank rate cut prompted lenders to reshuffle their deals

Major UK mortgage lenders have been reshuffling deals after the Bank of England's surprise rate cut to 3%.

Three lenders are relaunching tracker deals for new borrowers, but are widening the margin between the rate they charge and the Bank's rate.

Many tracker deals are linked to the Bank rate, which is widely expected to fall further in coming months.

Latest figures show that a growing proportion of new mortgages have been tracker deals, rather than fixed-rate.

Changes

A host of tracker deals for new borrowers were withdrawn last week at the time of the cut in the Bank rate from 4.5% to 3%.

If the bank rate goes down to 2% or 1%, [tracker deals] are still going to offer fantastic value for money Mortgage broker Aaron Strutt

This week, Lloyds TSB, which runs the Cheltenham & Gloucester, Abbey and Alliance & Leicester all started marketing new tracker deals to new borrowers.

But buyers face having to find a bigger deposit for some of the deals, while the margin between the interest rate charged and the Bank rate was wider than previous deals.

For example, Abbey is offering a two-year tracker deal for those paying a 25% deposit, at an interest rate of 4.99%. This is 1.99% above the Bank rate, compared with 1.79% on a similar deal offered at the start of last week.

Tracker floor

Some lenders have a floor, also called a collar, on tracker deals for new and existing customers. This means that if the Bank rate falls past this point, any cut will not be passed on to customers.

These providers include the Nationwide which has set the floor at 2.75%. HBOS can implement a 3% floor, and Abbey has the same level on a small proportion of its existing deals.

Brokers had been recommending a number of tracker deals to customers, predicting that the Bank rate would fall.

Aaron Strutt, of Chase de Vere Mortgage Management, said that this advice generally still stood.

"We are expecting the Bank rate to fall further. Lenders will hopefully be introducing more tracker deals, but borrowers should be careful regarding the collars," he said.

"Lenders are generally offering trackers new deals 2% above the Bank rate. If the Bank rate goes down to 2% or 1%, this is still going to offer fantastic value for money."

But he criticised lenders for "holding back" on the choice of tracker mortgages available at a time when there was high demand for these types of deals from customers.

Latest figures from the Council of Mortgage Lenders showed that the proportion of new tracker mortgage deals and standard variable rate (SVR) mortgages granted in September grew, while the proportion of fixed-rate deals reduced.

A group of the UK's biggest lenders announced on Friday that they would be passing on the Bank rate cut in full to customers with standard variable rate deals.

But relatively few other lenders have followed suit. Financial information group Moneyfacts said that only 20 out of 96 lenders had announced that they would pass on the cut on 1 December.

HOW MORTGAGE LENDERS RESPONDED

Lender	SVR before BoE decision	SVR after BoE decision	Rate change (percentage points)
HBOS	6.50%	5.00%	-1.5
Nationwide BS	6.19%	4.69%	-1.5
Abbey	6.94%	5.44%	-1.5
Lloyds TSB/ C&G	6.50%	5.00%	-1.5
Northern Rock	7.34%	5.84%	-1.5
Barclays	6.64%	Under review
RBS	6.69%	5.19%	-1.5
HSBC	6.25%	Under review
Alliance & Leicester	6.94%	Under review
Bradford & Bingley	7.09%	Under review
Bristol & West	6.59%	Under review
Britannia BS	6.30%	Under review
Yorkshire BS	6.60%	Under review
GE Money	10.39%	Under review
Coventry BS	6.84%	5.34%	-1.5
Standard Life	6.59%	Under review
Clydesdale & Yorkshire	6.64%	5.14%	-1.5
Chelsea BS	7.24%	Under review
Skipton	6.45%	Under review