Bank rate affects little change to lenders’ funding

“Last week’s base rate drop brought a little relief to some home owners,” comments Katie Tucker of John Charcol. “However, LIBOR failed to fall along with it as expected, because lenders continue to be cautious about lending each other money. At today’s 6.62%, the lenders’ own cost of funding is still too high for them to reduce their mortgage rates.

Halifax, Nationwide, Co-operative, GMAC, and Melton Mowbray have cropped their SVR’s a full 0.25%, but this is a poor show compared to the normally much keener run of SVR changes that typically occur in the first four days following a rate change. When SVR increased in July, it was all hands on deck at the Charcol technical team to keep on top of the quotes databases, but this time, borrowing at LIBOR has been costing lenders over half a percent more than Bank rate for over four months, so they are understandably reluctant to pass the saving on immediately; changes are few.

“There is no denying that in 2008, borrowing of all types will be more difficult and more expensive. Most lenders shift their credit score models up to catch only the lowest risk customers so 2008 is the year to be squeaky clean with your credit, and to repay any debt you can.”

What does this mean to borrowers?

Tucker continues: “Following the 0.25% Bank rate cut, many lenders such as Astra and Chesham, have chosen to effectively ‘split the difference’ with borrowers, by shifting their tracker margins back up 0.1%, thereby passing on only 0.15%. This is likely to be a common strategy, so borrowers would do well to act quickly to take advantage of the better margins on discounts and trackers. The best tracker with free valuation and legals on remortgages and a standard fee is Co-operative’s, at 0.01 under Bank rate for 2 years, giving a pay rate of 5.49%, for a fee of £999. For an exceptionally low rate with a 1.5% fee, Charcol’s 2 year tracker exclusive is best value at 0.56 under bank rate, so a 4.94% pay rate. For the borrower who is unsure of what next year holds for them, the best term tracker with no ERC’s is Lloyds 0.23 over Bank rate for term, with no arrangement fee or exit fee, and free valuation and legals for remortgages.

“Swap rates have held despite the Bank rate fall, currently sat at 5.49%, insinuating that a second drop is not expected immediately. There is consequently little improvement in two year fixed rates, The most competitive with a standard fee being Abbey’s 5.59% two year fix with £1,499 fee. Britannia’s 5.39% is the best five year fix for borrowers who perhaps want to knuckle down to a budget for a few years, with a fee of £999. Lloyds TSB has the lowest 2 year fix at 4.98% if your priority is to get the rate as low as possible by paying a premium arrangement fee, theirs is 2.5%. Lenders are using this rate and fee pricing of mortgages to help affordability for borrowers, but this can be confusing when shopping around, so professional advice should be the first port of call for home owners who want the best deals now. ”