Lenders are withholding best tracker rates

Borrowers have seen little benefit from the recent recovery in global money markets, with banks and building societies continuing to withhold lower rates.

Figures from Savills Private Finance show that while three-month Libor, the rate at which banks lend to each other, has fallen 0.7 percentage points from 2.17% to 1.49% in the past three months, the top two-year trackers are down only 0.5 points. Over the past year, three-month Libor has come down by 4.4 percentage points but the best trackers are only 3 points lower.

The figures came as Nationwide, Britain’s biggest building society, was criticised for scrapping a guarantee that its standard variable rate (SVR) would never be more than 2 percentage points above Bank rate — now 0.5%. New borrowers will pay an SVR of 3.99% when their deals end — 3.49 points above Bank rate.

Borrowers are increasingly rolling on to their lenders’ SVRs, often because they do not qualify for a new fix or tracker because of insufficient equity.

Nationwide, which prides itself on treating customers fairly and has run a high-profile advertising campaign comparing itself favourably with banks such as Barclays and NatWest, argues the move is necessary to protect savers’ interests.

Andy McQueen at Nationwide said: “It will provide us with more pricing flexibility, something that is essential in offering our savers more attractive products.”

However, Melanie Bien at Savills Private Finance said: “This move underlines the downside of standard variable rates, which is that they are set at the lender's discretion — leaving borrowers at their mercy.

“It brings Nationwide’s SVR more into line with some of its rivals, but it is a shame that the country’s biggest society should have to go down this route.”

Bien fears that other, smaller building societies will follow suit. Cheshire and Derbyshire, now owned by Nationwide, have similarly low SVRs.

With margins on some trackers and standard variable-rate mortgages as high as 4 percentage points above Bank rate, borrowers face a big payment shock when rates start to rise again — something analysts said could happen by the end of the year. They could find themselves paying as much as 8% once Bank rate returns to a more “normal” level of about 4%.

Ray Boulger of Charcol, a broker, said: “Banks have widened their margins as interest rates have fallen, and this could become a big problem for a lot of people when interest rates start to rise again.”

Homeowners are being urged to fix. David Hollingworth of L&C Mortgages, another broker, said: “Most people seem to think that Bank rate is unlikely to go any lower now. Medium-term fixes lasting for between three and five years are proving very popular at the moment.”

The best three-year deal on the market is from HSBC with a rate of 3.99% and a £599 fee, while anyone with equity of at least 40% can get a five-year fix at 4.24% from Britannia building society with a £999 fee.