Tracker rates hit seven year high

Last week’s 1.5% cut in the Bank of England’s base rate was accompanied by several leading mortgage lenders withdrawing their tracker products for repricing.

This week, research has shown that interest on tracker loans is at levels last seen in January 2001.

According to Bank of England figures, the average cost of a tracker mortgage for borrowers with a 25% deposit stood at 6.12% in September.

Despite a 0.5% cut in the base rate, to 4.5% in October, the average tracker rate for a similar loan increased to 6.84%.

Furthermore, the average margin above base rate rose from 1.12% in September to 2.34% in October, although the rise does take into account delays in lenders passing on the reduction in the base rate.

Politicians have become tougher, with Chancellor of the Exchequer Alistair Darling effectively ordering lenders to pass on November’s 1.5% base rate cut.

However, banks and building societies continue to argue that their margins need to cover the cost of attracting deposits or borrowing on the wholesale money markets, where three month sterling Libor has remained well above the base rate.

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