Tracker mortgage lenders under pressure
For those lenders offering tracker mortgage products, loan funding costs are rising. It is expected that soon lenders will pass on these extra costs to borrowers through mortgage rate increases. The three-month Libor, the rate used for lending between banks and pricing variable rate loans, has increased by 0.26 per cent since August 2011 and so banks are becoming more cautious in their short-term economic outlook.
However regardless of increased inter-bank lending costs, some lenders have higher credit ratings which has allowed them to continue to secure cheap funding which in turn has allowed them to keep their tracker mortgage deals at competitively priced levels.
HSBC and sister brand First Direct, have managed to maintain a best buy 1.99 per cent 2 year tracker rate because they have been able to borrow funds more cheaply in the market. They have also relied more heavily on retail savings which has meant they have been less affected by the rising costs of wholesale funding.
Banks with weaker credit ratings, such as Lloyds Banking Group, have found borrowing from the market more expensive and problematic and this is reflected by their mortgages rates not remaining at such attractive levels. ING, who were once able to offer some of the best lifetime tracker rates on the market, has pushed up it's rate to 3.74 per cent. The decision as to whether or not to increase tracker mortgage rates seems to be a direct reflection of the ease or difficulty lenders face when trying to borrow funds from the markets.
