Lenders lop off low rates as LIBOR holds high

Three-month LIBOR closed last night at six percent, some three-quarters of a percent over Bank Rate, forcing any lender with a half decent rate to price their trackers high to avoid the stampede of new borrowers looking for the best deal. Charcol’s Katie Tucker comments: “Because the synchronisation of exceptionally low two-year-old deals of around 4.29% are now reverting to unnaturally high standard variable rates of around 7.25%, remortgagers are also scrambling to arrange affordable rates, and lenders have had to pull their best deals off the shelves, just to catch their breath.

“There is also almost no notice of product closures, as lenders are reacting to the domino effect: others pack up shop, they suddenly find themselves market leading and have to pull down their shutters quick-smart. This means borrowers are being caught out by hesitation, even, for just one day. If the next best choice is 0.4% higher, that hesitation cost someone with a £200,000 mortgage, £800 a year.”

Existing borrowers are now at risk as well as lenders consider increasing their Standard Variable Rates (SVRs). Tucker continues: “It’s not just the borrowers on SVR discounts that should watch out, there are also ‘variable’ deals, normally flexible deals, and many offsets, that are simply ‘variable’ i.e. the lender has the right to alter the rate at any time at their discretion; normally capped as high as SVR, around 7.25%. Borrowers should check their Key Facts Illustrations to verify whether their rate tracks Bank Rate, SVR, or nothing at all.

Borrowers with 100% mortgages may well be concerned by The Land Registry’s report that house price growth was stagnant in February, but the risk does not stop there. Tucker warns: " Taking a current 95% mortgage is not automatically safer, as most lenders add a Higher Loan Charge (HLC) of around £2,000 as well as a percentage arrangement fee, adding around £3,500. Borrowers with small deposits should look out for the deals without HLC, as adding multiple fees to the loan could effectively wiping out your deposit on day one.”

What products are available now?

Tucker concludes: “Bank rate and Lenders’ cost of borrowing is no longer related in the way it used to be so despite an imminent third Bank rate cut, borrowers will see little effect on new rates. Trackers are sky-high and purposefully out of reach. Today, Woolwich has increased its lifetime trackers by 0.4% taking a two-year at 90% to Bank rate plus 1.69% giving a pay rate of 6.94% (Overall Cost for Comparison 6.94% APR), and Salt (Derbyshire Building Society) has withdrawn all trackers with no replacements as yet.

“Swap rates have fallen marginally to 5.17% showing that the two year expectation for Bank rate is lower than now. Thankfully, lenders are, therefore, able to price fixed rates competitively, offering some alternative for borrowers. Newcastle has a 5.15% two year fix for a 2.5% fee, or Abbey has a 5.89% two year fix for a £999 fee with free valuation and legals. Woolwich continues to brave the top lines of a best buys table with its market leading 5.29% ten-year fixed rate with free valuation and legals on remortgages.”