Tracker Mortgages - Can the banks do this???!!!

laineyc_2

I got a Moneywise email today. http://www.moneywise.co.uk/news-views/2008/10/21/the-great-interest-rate-swindle?utm_source=Newsletter2008-10-21&utm_medium=Email&utm_campaign=ContentPromotion


SVR mortgage borrowers are not the only homeowners set to be hit by lenders' reluctance to pass on cuts - tracker rate borrowers are also likely to suffer. Because this type of mortgage literally tracks the Bank of England base rate, many borrowers assume they will benefit from low interest rates.
However, for many, this is not the case. Lenders such as HBOS, Nationwide, Abbey and HSBC all impose minimum tracker rates, which means borrowers' rates will either never go below a certain level (normally 3%) or the bank will stop reducing the rate if the Bank of England's base rate falls below a certain level (again, normally 3%)


I checked our HSBC T&C's the other day and our KFI and found absolutely no mention of a minimum tracker rate. I am going to go through all the documentation again tonight.

tonytsdiver

I have an Abbey Flexible mortgage at .49 % over base rate.It states that if the interest rate drops below 3 % then they have the power to change the rate.What's worrying though is even if the interest rate is then later increased by the BOE they have the power to continue with the new tracker differential. This is condition 13.6 of the terms and conditions booklet.So they have us by the short and curly's once again. The only way customers will be better off will be if the base rate drops to 3 % but no lower.

Rikki

tonytsdiver wrote: »

I have an Abbey Flexible mortgage at .49 % over base rate.It states that if the interest rate drops below 3 % then they have the power to change the rate.What's worrying though is even if the interest rate is then later increased by the BOE they have the power to continue with the new tracker differential. This is condition 13.6 of the terms and conditions booklet.So they have us by the short and curly's once again. The only way customers will be better off will be if the base rate drops to 3 % but no lower.

3% is still a better rate than what we have now and is has been over the last few years. It will certainly enable me to make over payments.

BradfordBull

Still not exactly fair though Rikki...

The point of a tracker is that its a bit of a gamble, You take a risk that rates go up but the bank takes a risk that rates go down. If you don't like that risk you get a fixed rate mortgage.

It seems like the customer takes all the risk if the banks can stop tracking the Base rate when they see fit.

Still I wonder if this 'tracking floor' applies to ALL trackers or just some. It seems to be mentioned in some T&C's but not others so does it depend on the product ie lifetime trackers vs 3 yr trackers or will all banks introduce this floor if they're not making enough profit.

Methinks the latter.

Ross_Hampton

Hi,

Its true many lenders have a minimum cut off that then sticks to that limit despite any further cuts on the BoE base rate, however compared to products currently on the market your deal sounds great

BradfordBull

It is a good deal compared to alot of products on offer now but these are strange times.

Still, its about whether or not you can tolerate the risk. If interest rates went up to 10% I'd be shafted. The bank wouldn't let me off the hook and nor should they have to. I'm willing to take that risk.

Therefore if they go down to 2% I should be able to gain that benefit.

The bank should share the risk with me.

laineyc_2

Well, I have gone through all our documentation with a finetooth comb and there is no mention of a floor in our KFI, Offer or T&C's. It states that our rate is 0.23% above BOE base rate for the term of the mortgage.We have a lifetime tracker with HSBC. Will have to see if there is an issue if rates fall further.

Debras_Angel

laineyc wrote: »

I got a Moneywise email today. http://www.moneywise.co.uk/news-views/2008/10/21/the-great-interest-rate-swindle?utm_source=Newsletter2008-10-21&utm_medium=Email&utm_campaign=ContentPromotion


SVR mortgage borrowers are not the only homeowners set to be hit by lenders' reluctance to pass on cuts - tracker rate borrowers are also likely to suffer. Because this type of mortgage literally tracks the Bank of England base rate, many borrowers assume they will benefit from low interest rates.
However, for many, this is not the case. Lenders such as HBOS, Nationwide, Abbey and HSBC all impose minimum tracker rates, which means borrowers' rates will either never go below a certain level (normally 3%) or the bank will stop reducing the rate if the Bank of England's base rate falls below a certain level (again, normally 3%)


I checked our HSBC T&C's the other day and our KFI and found absolutely no mention of a minimum tracker rate. I am going to go through all the documentation again tonight.

Hi Lainyc,

Thanks for that link.

I'm on SVR as it's not cost effective to go on any deals as we only have a small mortgage now. We are with Halifax ans got our confirmation letter on Monday re the 0.5% decrease. Well chuffed and was hoping it would keep going down, so will have to wait and see.

Ian_Griffiths_Halifax

For anybody on a Repayment Mortgage with the Halifax and wanting to overpay while rates are dropping, bare in mind that while you are overpaying, you are reducing the term of the mortgage and AFAIK the Halifax are charging £10 per overpayment as you are effectively reducing the term with each overpayment.

Check with the lender first before doing this. The alternative is to set up a Standing Order for the difference between the new reduced Mortgage payment and the old Mortgage payment, and pay this into a Savings Account until there is sufficient to make a lump sum payment off the mortgage.

Halifax mortgages allow you to pay up to 10% of the mortgage off without penalty.

manikm

laineyc wrote: »

Well, I have gone through all our documentation with a finetooth comb and there is no mention of a floor in our KFI, Offer or T&C's. It states that our rate is 0.23% above BOE base rate for the term of the mortgage.We have a lifetime tracker with HSBC. Will have to see if there is an issue if rates fall further.

cor what a rate u have!

well done mate, how long u had that for.

ive just got the .79 above base with HSBC - i will check my paper too later, or tomorrow.