The market is fast-moving at the moment (Image: PonyWang via Getty Images)
Mortgage brokers have cautioned borrowers that particular lenders are expanding their margins on selected tracker products, in some instances quite “generously”. While they acknowledge lenders are doing nothing improper and are either being “opportunistic” as demand for this mortgage type rises, or managing volumes and risk, one broker described the situation as “frustrating”.
When lenders expand their margins, they are effectively enlarging the gap between their cost of funds and the interest rate they charge borrowers.
Louis Mason, communications director at London-based Oportfolio Mortgages, said: “We are seeing a bit of lenders widening their margins, yes. Tracker demand has crept up as fixed rates have felt eye-wateringly expensive and lenders aren’t daft, they price accordingly.
“Some of the margins on newer tracker products are a touch generous, shall we say. But I wouldn’t rush to call it profiteering.
“It’s more a case of lenders hedging their bets and managing pipeline risk in a volatile rate environment. When everyone piles into one corner of the market, pricing rarely gets cheaper out of kindness.
Rates are changing quickly (Image: Oscar Wong via Getty Images)
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“The irony is that borrowers are chasing flexibility and potential savings, but if the margin’s been padded, the ‘deal’ can quietly lose its shine. It’s a bit like thinking you’ve found a bargain flight, only to discover the luggage costs more than the ticket.”
Darryl Dhoffer, founder of Bedford-based The Mortgage Geezer, said lenders were simply being “opportunistic”.
He continued: “Lenders know that borrowers are suffering with fixing-phobia right now. They are therefore pricing trackers not just on the cost of money, but on the value of the flexibility they provide.”
Sarah Fox-Clinch, director at Fox Davidson, said lenders “increasing the margins on tracker rates is particularly frustrating as swap rates do not affect tracker pricing, but affect fixed rate pricing”.
However, she shed light on why certain lenders are pushing up their margins: “I think they are more comfortable with the majority of their clients being fixed into a product as this gives them a known ‘churn rate’ so they can predict how many people will be coming back to the product transfer and remortgage market at any particular time in the next few years. Many trackers do not have early repayment charges, so having a large percentage of their mortgage book able to leave them at any time isn’t what they want.”
Craig Fish, director at London-based Lodestone Mortgages, a broker, said: “We are starting to see lenders widen their margins on tracker products as demand for them increases. Some of that is understandable, as lenders are pricing for product flexibility and the additional risk that comes with a variable rate product. But some of it does look like pricing based on popularity, which is a different thing entirely.
“What concerns me more, though, is an inconsistency I am seeing with certain lenders when it comes to early repayment charges (ERCs). Some are offering ERC-free tracker mortgages to new customers, while existing customers choosing the same product are subject to ERCs.
“That is a difficult position to justify and borrowers should be aware that loyalty is not always rewarded in this market. Taking independent advice before committing to any product has never been more important.”
Nevertheless, Aaron Strutt, product and communications director at London-based Trinity Financial, struck a more optimistic note: “Some of the tracker rate margins have gone up, but there are still some decent trackers to choose from, especially if you have a larger deposit.
“Skipton has just announced rate increases to its residential base rate trackers, although lenders like Halifax still have two-year tracker rates starting from 3.96%.
“Looking at the prices of fixed rates at the moment, many borrowers will think variable rates look like a good bet, especially if they do not expect the Bank of England base rate to increase anytime soon, given the state of the UK economy and the current global turmoil.”
