Tracker mortgage borrowers facing higher rates

Borrowers choosing tracker mortgages are seeing rising rates and fees as the credit crunch wipes out any gains from prospective bank of England interest rate cuts.

In the days before the liquidity crisis hit the global financial sector, borrowers chose mortgages that tracked the Bank Base Rate (BBR) because they thought the rate would drop in the future.

The loading above BBR was generally stable in the region of 0.5 per cent to 0.75 per cent - depending on the length of the tracker term.

However, with the present difficult market conditions, this has changed.

According to independent financial data firm Defaqto the number of available BBR tracker mortgages has dropped by almost a quarter since July 2007.

Furthermore, tracker mortgages have seen interest rates increase - a change which has more than negated the half percent decrease in BBR since December.

The Bank of England has cut rates twice in recent months, in December and February to a rate of 5.25 per cent, but this has not been reflected in the market.

For two-year trackers, the period with the most plans on offer, the average loading above BBR increased from 0.49 per cent to 1.17 per cent since July 2007.

This represents an increase of 139 per cent over the last eight months.

It's a similar picture for three-year trackers, with an average loading increase from 0.52 per cent to 1.14 per cent, growth of nearly 120 per cent.

For the other main mortgage term products, there have been increases, although they have not been quite as steep.

Finally, application fees have also increased since July, according to Defaqto, concluding a triple whammy for borrowers.

Fees for a typical two-year mortgage have gone up from £688 in July 2007 to £1,005 currently, a 46 per cent increase. This gets worse at the tracker term increases, rising to a massive 139 per cent for term trackers.

"With banks and building societies trying to repair their balance sheets in an atmosphere of financial mayhem, it is hardly surprising it is the poor consumer who is caught in the middle and is having to pay more for less choice," said David Black, principal consultant, banking at Defaqto.

"It is almost as though we are going back to the days when lenders felt they are doing you a favour by offering you a mortgage."