Banks and building societies withdraw tracker mortgages
Falling demand, as people opt for safer fixed rates ahead of a potential rate rise, main reason for decision.
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.
See the latest mortgage rates and get expert advice
The benefits of a doomed deal
Although tracker deals are doomed to rise as soon as the base rate does they could benefit some borrowers in the meantime.
That’s because tracker deals tend to be cheaper than fixed rate mortgages precisely because they don’t come with the same security. Although rates may have near enough equalised when it comes to short-term trackers, lifetime trackers are still more affordable compared to fixed rate deals.
The cheapest lifetime tracker at the moment available from HSBC, for example, charges 1.49% above base rate, which gives a pay rate (the overall rate the borrower is charged) of 1.99% on a 60% loan-to-value (or LTV: the percentage of the home's value that's been borrowed) mortgage. Meanwhile, the best comparable five-year fixed rate, also from HSBC, charges 2.94%.
Borrowers go for the cheaper deal in the hope that rates will fall or stay the same. But with rates only set to rise, tracker deals can only get more expensive, which might make you think going for this sort of deal is counterintuitive.
However, the other good thing about some short-term and lifetime trackers is that they can also be very flexible and many don’t come with early repayment charges. This means you can benefit from lower repayments for a while but switch deals without penalty as soon as rates start to rise. Deals without early repayment charges also allow you to overpay your mortgage without charge so you can build up equity in your home if you have some spare cash.
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Hunting for a tracker deal
Tracker deals can be useful, but as the moves from some of the UK’s biggest lenders indicate, they are in decline.
According to financial data company Moneyfacts, there are now only 55 lifetime tracker mortgages available today, compared to 75 at the same time last year. And there are now only 301 two-year variable deals available today compared to 409 a year ago, and many of these will be discounted variable rates rather than trackers.
If you like the sound of a lifetime or short-term tracker deal you can compare deals over at our mortgage centre.
But here are the best two-year and lifetime tracker rates available now without any early repayment charges across a range of LTVs.
|
Provider |
Term |
Interest rate |
Fees |
LTV |
|
Lifetime |
1.99% (Base rate + 1.49%) |
£999 |
60% |
|
|
Two years |
1.99% (Base rate + 1.49%) |
£999 |
60% |
|
|
Two years |
2.18% (Base rate + 1.68%) |
£999 |
70% |
|
|
Lifetime |
2.19% (Base rate + 1.69%) |
£999* |
70% |
|
|
Lifetime |
2.29% (Base rate + 1.79%) |
£500 |
65% |
|
|
Lifetime |
2.49% (Base rate + 1.99%) |
£495 |
75% |
|
|
Lifetime |
2.59% (Base rate + 2.09%) |
£999* |
80% |
|
|
Lifetime |
3.29% (Base rate + 2.79%) ** |
£1,499*** |
85% |
|
|
Lifetime |
3.59% (Base rate + 3.09%) |
£500 |
85% |
|
|
Two years |
3.69% (Base rate plus 3.19%) |
£990 |
90% |
|
|
Lifetime |
3.99% (Base rate + 3.49%) ** |
£1,499*** |
90% |
|
|
Lifetime |
4.19% (Base rate + 3.69%) |
£999* |
90% |
*Existing current account customers get the same rate for a lower fee – Standard (£499), Premier/Advance (£299).
**Purchase only
*** Existing current account customers get the same rate for a lower fee of £999.
See the latest mortgage rates and get expert advice
This article aims to give information, not advice. Always do your own research and/or seek out advice from a regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.
More on mortgages:
Seven reasons mortgage lenders turn you down
The mortgages that will see you through a rate rise
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