UK Lenders Overprice Tracker Mortgage Deals

As the latest mortgage figures were published last week by the Bank of England, UK lenders faced severe criticism for profiteering from tracker rates. Mortgage brokers reported increased demand from borrowers for variable loans, while Bank of England’s data showed that the price of tracker mortgage deals reached its highest level in September 2009. According to estimates, lenders’ annual profit on a £200,000 mortgage stood at £1,880 more in September 2009 than in January 2009, when Libor was more expensive. Borrowers, however, still actively apply for tracker mortgage deals. According to Mr. Ray Boulger from mortgage brokerage firm John Charcol, almost 60% of its clients were interested in variable rate mortgages in the past weeks despite the fact that Bank of England’s data revealed that an average interest rate on a tracker mortgage deal reached 3.9% in September. Interestingly, an average tracker rate stood at 4.51% in January, while Libor was 2.13%; therefore, the current increase in an average tracker rate mortgage amounts to 0.95% as Libor now reaches 0.58%. Another mortgage broker, Ms. Melanie Bien, representing Savills Private Finance, said that UK lenders have acted extremely “opportunistic to say the least” as they significantly increased the cost of tracker rate mortgages in the past 10 months, profiteering from borrowers’ demand for them. One more view of this situation was reflected in the research work published by Capital Economics lately. According to the research, lenders have been increasing the cost of mortgages in the past months not only because of high funding costs, but also to ration credit by discouraging borrowers. Moreover, mortgage experts expect interest rates to increase next year. As for now, some banks are already withdrawing their best buy deals (such as HSBC’s 1.99% 2-year mortgage deal), prompting UK borrowers to look for better options.