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Banks And Building Societies Withdraw Tracker Mortgages

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http://www.lovemoney.com/news/property-and-mortgages/mortgages/30598/banks-and-building-societies-withdraw-tracker-mortgages

Barclays has stopped selling lifetime tracker mortgages to new customers.

The bank said the demand for this sort of product – the interest rate of which tracks a set percentage above the Bank of England base rate for the entire lifetime of the mortgage – had dropped off significantly. Instead, with the threat of a base rate rise looming, borrowers are opting for the security of two- and five-year fixed rate products.

Barclays will now only offer an offset lifetime tracker and a few short-term two-and three-year tracker deals that come free of early repayment charges. However, all of Barclays fixed and variable rate deals will continue to revert to a lifetime tracker at the end of an initial lock-in period.

Barclays is not alone in adjusting its tracker range. Some of the UK’s largest lenders have scrapped their tracker mortgages altogether.

Other lenders back off trackers

Halifax and Lloyds (both part of Lloyds Banking Group), along with Skipton Building Society, have recently removed their short-term tracker mortgages from sale. These mortgages also track a set percentage above the Bank of England base rate, but for a limited two- or three-year period, after which they reverts onto a lender's standard variable rate (SVR).

These lenders also blamed a fall in demand as borrowers move to fixed rates but they also admitted they weren’t able to price these deals as competitively as comparable fixed rate options.

Brokers confirm that, on average, 9 out of 10 borrowers are going for fixed rate deals. However, removing tracker products just because they are unpopular right now seems like a drastic move.

It seems the BoE threats to increase the base rate is working, borrowers are moving to fixed deals which will then allow the BoE to claim that an interest rate raise won't work....

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If the BOEs forward guidance is intended to push mortgage holders into signing up for fixed rates, surely that means that instead of a small rate rise affecting borrowers and throttling demand, they will need a larger rate rise that will push a few more business over the edge and put people out of work - thus throttling demand - how is that better?

If the govt actually banned all trackers and all fixed rates - that would have two effects - interest rate changes would have an immediate effect (so they could be much smaller) and instead of a myriad of confusing 'teaser rates' we would have instant visibility of which bank was offering the best rate compared to the base rate.

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First Direct were still doing a 2.2% tracker a couple of days ago.

HSBC/First Direct are probably the only lenders doing decent Lifetime trackers at low rates, and that's been the case for a while now. Although as we know, it needs to be a relatively small mortgage and lowish LTV to get past their own lending criteria.

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If the BOEs forward guidance is intended to push mortgage holders into signing up for fixed rates, surely that means that instead of a small rate rise affecting borrowers and throttling demand, they will need a larger rate rise that will push a few more business over the edge and put people out of work - thus throttling demand - how is that better?

If the govt actually banned all trackers and all fixed rates - that would have two effects - interest rate changes would have an immediate effect (so they could be much smaller) and instead of a myriad of confusing 'teaser rates' we would have instant visibility of which bank was offering the best rate compared to the base rate.

Teaser rates serve a secondary purpose. The majority of them prohibit overpayments which in turn keeps net lending higher than might otherwise be the case.

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