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Mortgage lenders squeeze extra profit before base rate falls

With speculation rife that the Bank of England will cut the base rate again next week, mortgage lenders have been preparing for the potential increased demand by increasing margins offered on tracker rate mortgages.

In the last two weeks alone, exclusive analysis from Moneyfacts.co.uk has revealed that 10 mortgage lenders increased the margins on tracker mortgages by as much as 0.45%.

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Existing tracker mortgage customers will be waiting with baited breath for the rate decision next Thursday, knowing their rate will fall in line, but these recent increases will impact prospective new mortgage borrowers. Take the example of a mortgage taken out prior to 17 January with a rate of 6.29%; the same deal is now available at 6.69%. Both rates will change by the same amount at the same time, but the borrower who delayed the decision to take out a tracker mortgage deal will always be paying 0.40% more.

With the demand for fixed rate mortgages dropping and with further base rate reductions expected, variable rate mortgages are back in vogue. variable rate mortgages linked to the lenders standard variable rate, typically discounted variable rate mortgage  deals, can be tweaked by the lender at anytime. Variable tracker mortgage rates, on the other hand, are linked to Bank base rate. With these products the lender does not have control of the underlying rate and is therefore more likely to tweak margins prior to a base rate cut in order to increase profits.

The message for any prospective mortgage borrower wanting to take advantage of anticipated cuts in base rate by getting a tracker rate mortgage, would be to act quickly, or face paying much higher rates.

Alternatively, if you prefer the stability of knowing what your monthly payments will be, fixed mortgage rates are starting to drop. The market still has room to fall further, so you may be wise to hold back from fixing in too early.

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