A&L pulls two-year trackers
Alliance & Leicester is to pull all its two-year tracker mortgages following a surge of demand from borrowers hoping to cash in from base rate cuts.
The lender, which is currently in the process of being acquired by Santander, the Spanish owner of Abbey, says predictions of future base rate cuts have prompted a flurry of application for tracker deals.
As a result, it is withdrawing all of its two-year products from the end of today (Wednesday 22 October).
Richard Taylor, head of mortgage products at Alliance & Leicester, says: "Over the past few days we have seen a high demand for all of our two-year tracker products.
“We have, therefore, taken the decision to remove the tracker products from the range in the short term in order to manage the volume of business we are receiving at present.”
The move comes after several lenders have hiked their tracker rates.
David Hollingworth, a mortgage specialist at London & Country, says the high cost of funding for variable rate loans on the money markets (known as Libor) is putting pressure on tracker margins – forcing lenders to either put up rates or withdraw from the market.
Halifax and Nationwide have both put up their tracker rates in the past few weeks, while Abbey and Barclays (through its Woolwich brand) have unveiled two sets of price hikes.
Hollingworth says: “The mortgage market is constantly moving at the moment, and it is no surprise tracker rates are going up because Libor remains high.
“The good news is it is starting to fall at a quicker rate than we’ve seen before, but it will be a while before tracker mortgage rates come down.”
He adds: “The danger for borrowers looking to remortgage is playing a waiting game for rates to come down – but if they are on their lender’s standard variable rate they could be paying a high price for hanging on.”
Fixed-rate mortgages also show positive signs of coming down in cost, as swap rates (the funding from the money markets used to price these sorts of deals) have got a little cheaper.
With a tracker mortgage, the interest you pay is an agreed percentage above the Bank of England’s base rate. As the base rate rises and falls, your tracker will track these changes, and so rise and fall accordingly. If your tracker mortgage is Bank of England base rate +1% and the base rate is 5.75%, you will be paying 6.75%. Tracker rates are lower than lender’s standard variable rate (SVR) and as they are simple products for lenders to design, they usually come with lower fees than other mortgage schemes.
The London Inter-Bank Offer Rate is the rate at which banks lend to each other over the short term from overnight to five years. The LIBOR market enables banks to cover temporary shortages of capital by borrowing from banks with surpluses and vice versa and reduces the need for each bank to hold large quantities of liquid assets (cash), enabling it to release funds for more profitable lending. LIBOR rates are used to determine interest rates on many types of loan and credit products such as credit cards, adjustable rate mortgages and business loans.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.