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Saturday 06th of December 2008
October 30, 2008

Tracker rates stuck in the past


by Gill Montia
Tracker rates stuck in the past

Moneyfacts.co.uk has revealed that average tracker rates are at the same level as this time last year, despite a 1.25% cut in the base rate in the interim.

According to Moneyfacts’ research, the average rate on a tracker mortgage is 6.27% today, compared to 6.23% in October 2007.

The price comparison website’s analyst, Michelle Slade, concludes that the Bank of England’s best efforts to bring down borrowing costs for homeowners are being blocked by lenders.

While the 0.5% base rate cut at the beginning of October prompted many lenders to reduce their tracker rates, the reductions were offset by rate increases that have taken place over the past 12 months.

Ms Slade explains that the Bank of England base rate was once a major element in deciding mortgage rates but recent trends indicate that lenders are factoring in a much bigger margin for risk in pricing their loans and that this is keeping rates high.

To illustrate the point, the base rate was last at its current level of 4.5% in August 2005, at which point borrowers could have obtained a rate of 4.25% on a two-year tracker, whereas today the best rate on offer is 5.99%.

The base rate will be reviewed again next week and a further cut is expected but Ms Slade warns that lenders may in the future cap tracker rates setting a level below which they will not pass on base rate cuts.

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Story link: Tracker rates stuck in the past


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