August 17th, 2016
Mark Carney, the governor of the Bank of England, clearly confirmed in the wake of the recent cut to the Bank base rate to 0.25 per cent that any banks not passing on the benefit of the cut to customers would be financially penalised by the central bank. As such there has been a proliferation of interest rate cuts over the past week, with many lenders reducing products across the board.
Despite this wave of acknowledgement from lenders to the governor’s request for assistance in supporting the economy, several major mortgage lenders have chosen to pin point first time buyers as a particular route to balancing their books. Halifax, Nationwide and Tesco have all re-aligned their tracker rate options for all buyers, considerably raising the margins of interest to the point where the impact is clear.
The move will be particularly frustrating for first time buyers, given that the costs to purchase a property in the UK are already prohibitive for many younger buyers. When coupled with the recent spate of interest rate cuts to savings rates, the effect of these changes will be felt most by new borrowers.
Halifax chose to impose the highest increase on interest rates, increasing their 15-20 per cent loan to value products by 0.45 per cent, so almost doubling the level that the Bank of England chose to cut the Bank base rate by.
In an attempt to justify the revision to their product range, a Lloyds Banking Group spokesman suggested that Halifax had dampened the effects of the increase by adding £500 cashback to the purchase rate options. The spokesman added that: “Base rate is only one of a number of factors we use to take into account when reviewing interest rates.”
Commenting on the move, Simon Butler, Associate Director for Contractor Mortgages Made Easy said: “Banks were never likely to sit still and accept what has to be a sizable reduction to their profit margins. We are now in a market where the cost of purchasing interest rates on the money markets will have improved, even with the weakening of the pound after the result of the referendum.
“If you consider that providing cashback of £500 only marginally reduces the impact of a rate increase in Halifax’s case, the justification seems to be very limp.”
On the 11th of August, Tesco Bank also raised many of their own tracker margins, in direct response to the base rate cut. A spokesman from the bank said: “We have reviewed our mortgage tracker rates in line with market variation, and whilst they have changed, they are still among the lowest rates currently available.”
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