Lenders accused of 'sneakily' pushing up first-time buyer rates
Lenders have been accused of defying the Governor of the Bank of England by raising the cost of first-time buyer mortgages, despite the fall in the base rate.
Mark Carney told lenders that they had 'no excuse' not to pass on lower rates to borrowers, but many have increased the cost of some of their deals.
Lenders increase the cost of first-time buyer tracker deals
When the Bank of England cut the base rate from 0.5% to 0.25% in early August, the Bank's Governor urged lenders to pass the cut on, insisting that lower rate should “immediately” benefit borrowers.
However, over the past two weeks a number of major lenders have increased the price of their mortgages, making first-time buyer deals more expensive than before.
The Daily Telegraph reports that the most substantial price increases were made by Halifax, Britain's biggest lender. Halifax increased the interest rate on its two-year tracker for first-time buyers with a 15-20% deposit, by 0.45 percentage points from 1.59% to 2.04%. This adds £86 a month to the cost of a 25-year £400,000 mortgage.
A Lloyds Banking Group spokesman said Halifax had minimised the impact on customers by increasing cashback by £500. He said: "Base rate is only one of a number of factors we use to take into account when reviewing interest rates."
Tesco Bank has also raised the rates that apply to 12 of its tracker mortgages for new customers. Its two-year tracker with £0 fee for borrowers with 10% deposits has risen from 2.55% to 2.83%, adding £57 a month to a 25-year £400,000 mortgage and cancelling out the benefit of the rate reduction.
A Tesco Bank spokesman 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.”
Despite initially dropping its tracker rates by 0.25%, Nationwide has added 0.1% to the cost of some of its tracker rates. A spokesman said: "The cumulative reduction in those cases remains at 0.15% lower than before the bank rate reduction."
Mortgage expert Andrew Montlake says: "Lenders have done this [increased rates] because ultra-low bank rate directly affects their profitability. It is a sneaky attempt by banks to protect their own margins but this kind of move is not uncommon in a falling market."
First-time buyers hit by double whammy
As well as seeing the cost of some deals rise, first-time buyers are also being hit by ultra-low savings rates. Banks have cut the rates on many savings accounts and high-interest bank accounts, making it even harder for new buyers to save the deposit they need. For example, Santander have cut the headline rate on its 123 Account from 3% to 1.5%, while many other High Street lenders have cut the rates payable on their most popular accounts.