Lenders push up tracker rates despite base rate freeze

Latest figures from the Bank of England show that banks and building societies are raising the cost of their variable-rate mortgage deals.

The news is disappointing, given that the base rate was held at an all-time low of 0.5%, in June and three month Libor, the rate at which most lenders borrow to fund their mortgage businesses, has fallen.

According to the Bank, the average rate on a tracker loan stood at 3.99% in May, up from 3.86% a month earlier, for those with a 25% deposit.

In addition, the cost of five and ten-year fixed-rate deals increased last month, although the average two-year fixed rate at 75% loan-to-value ratio fell, from 4.02% in April to 3.97% in May.

Fixed rates are set by money market swap rates, which reflect analysts’ predictions for the future direction of interest rates, and brokers have been warning for some weeks that fixed rates may have bottomed out.

In related news, a Deputy Governor of the Bank of England yesterday warned banks that the economic recovery is dependent on increased lending.

Speaking at the London conference of the Association of British Insurers, Paul Tucker described current lending levels to businesses and individuals as “subdued” and questioned whether they could return the UK economy to growth.

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