Where have all the trackers gone? And how can you find one?
There has been a heck of a lot of press coverage about tracker mortgages recently, most of it focusing on existing mortgage borrowers. Those lucky enough to have already had a tracker before the Bank of England finally pulled its finger out and starting cutting rates have been rewarded by lower monthly repayments - much lower in fact.
The average borrower with a £150,000 mortgage will have seen his monthly repayment fall by over £150 in the last three months if he is lucky enough to have a tracker. And of course, mortgage rates could fall further with the Bank of England expected to cut the base rate further.
This is all great news for existing customers but what about new borrowers?
The last two rate cuts have been swiftly followed by a mass withdrawal of tracker rates for new borrowers - as the lower base rate made them simply too cheap for lenders to offer.
Lenders knew that the highly competitive products could lead to a flood of applications that could swamp them. Plus, they argue there is a disparity between the base rate and their own borrowing costs, although LIBOR (which reflects their costs) has fallen by over 2% since 5th November.
Bye, bye trackers
So away went trackers, temporarily, following the November rate cut, and lenders crept back into the market with new trackers priced at wider margins. But at least many did re-launch them.
It was a different story following the December rate cut when once again lenders withdrew trackers, but we are still waiting for many to reintroduce them.
According to Moneyfacts there were 68 two-year trackers available on 5th November, the day before the base rate cut. The following month, a day before the December cut this had dropped to 53 two-year deals, a significantly but not massive drop. However, now there are only 13 two-year trackers available.
Why is this?
The reasons outlined above (lenders' borrowing costs and the need to avoid a flood of applications) go some way to explaining the shortage. But another reason is that lenders foresee further rate cuts. If the base rate is cut again in January, they will have to go through this whole withdrawal and repricing process again. It's possible some have chosen to wait until the January rate decision before repricing their trackers, figuring that the Christmas break and the current low lending levels (even in the context of this year) make waiting the preferred option.
What about the trackers that have been relaunched?
A few lenders have nailed their colours to the mast and relaunched trackers following the December cut in the base rate. And regardless of their pricing or limited criteria, at least they are out there with some tracker products, albeit limited. In my view, throwing your hat into the ring, even if it's an overpriced hat that doesn't fit many people, is to be applauded if the alternative is standing on the sidelines offering nothing.
So let's have a look at these products.
There are over 40 trackers available, with 13 being two-year deals. An average two-year tracker now is 2.31% above Base Rate compared to 1.67% before the November cut.
The biggest notable absence with current trackers is a lack of products above 80% loan-to-value (LTV) for new customers. Most deals are pegged at 60% and 75% LTV with a handful at 80%.
If you happen to be an existing Nationwide borrower and are moving home the lender does have a tracker product available up to 95% at 5.49% with a £995 fee.
For new borrowers or switchers with a deposit or equity of less than 20%, a tracker will simply not be an option at the moment. If you are coming up to renewing your deal it could be worthwhile going onto your default option of SVR until more deals become available. Of course this depends on what your lender's SVR is -- it could be worth switching. Britannia's SVR is 4.99%, comes with no arrangement fees, no early repayment charges and is available (to first-time buyers and remortgagors) up to 90% LTV.
But back to trackers. For those lucky borrowers with at least 40% equity or deposit there's a good range of options.
60% LTV
The best rate in this tier is from HSBC at 3.64% (Base plus 1.64%), plus this term tracker comes with a reasonable fee of £799.
Woolwich's term tracker is a close second at 3.99% (Base plus 1.99%) with a fee of £995.
If you want a two-year tracker decent options come from Abbey at 3.99% with a £1,995 fee or C&G at 4.15% with a £995 fee.
75% LTV
The headline rate in this tier is a two-year tracker from C&G at 3.69%, but the 2.5% fee will be prohibitive for many borrowers at £3,750 on a £150,000 mortgage.
The lender also has a lower fee option at 4.49% with a £995 fee. Or Abbey has a two-year tracker at 4.24% with a £1,499 fee.
Nationwide also has a two-year tracker for switchers only at 4.49% with a tiny fee of £299. If you are not switching the rate rises to 4.69% and the fee goes up to £995.
80% LTV
The best deals in my view come unexpectedly in the highest LTV tier, with First Direct offering up two best-buy term trackers for those with a 20% deposit or more.
Firstly, it has an offset tracker mortgage at 3.49% (Base plus 1.49%) which comes with a cheap fee of £599.
Secondly, it has a capital repayment tracker mortgage at 3.69% (Base plus 1.69) with a tiny £399 fee.
Quite frankly, even if I had a 40% deposit, I'd still be looking to get one of these deals.
Other 80% LTV offerings come from Woolwich at 4.99% (Base plus 2.99% for the life of the loan) with a £995 fee, or from The Derbyshire at the same rate with a fee of £999.