Why are Trackers so high?

kriss_boy

In 2008 I got a tracker thats only 0.5% above the BoE. But right now the best Lloyds can offer is around 4% above the BoE. Why so high?

Arent we all in agreement that the BoE will rise to 5/6% again in the forseable future- making these trackers push up to 10% mark. Why would anyone agree to that? Or is there sufficient cause to believe that long term, 10/15 years, the BoE will remain really, really low?

You'd think it would be the opposite at the moment- low trackers to entice people in naively before interest rates really do rocket!

How did some of us manage to get such a low tracker, 0.5%, when the housing market was so strong?

originalmiscellany

It depends on 2 things:
a) The % of the loan to value of the house you're borrowing...
The lower the loan to value, the better the rate.

b) I guess it's to do with banks needing to make a profit due to the terrible banking crisis over the past 3 years, where thy have to turn in a decent profit.

c) I imagine in the current financial situation, banks charging interest rates on houses of say a few percent will have a problem when rates increase to say 5% and loads of people may have to default - therefore messing up bank figures - by increasing the trackers to a high rate means they're going to line their pockets nicely. It's very much back to financial austerity measures for us I think.

originalmiscellany

having just read my response, I don't know at all!
It's not very well written, but I'd be interested in someone's opinion.

Sorry if my ramblings have confused you - they've certainly confused me!

mcallister1

I think I know. It used to be the tracker was an incentive for the first few years but as the B of E rate has sunk, instead of happening the option of a svr which was high or a tracker which was lower but cost you a fee;instead when you enquire now you are only offered the tracker. In fact when you come off it you are on a better rate. So you are still thinking of the tracker as a deal to entice you in- it isn't really that now, but a means of charging when the boe rate is so low.

kriss_boy

So.. in what situation would a financial advisor suggest a tracker that sits 3/4% above the BoE is a good idea? Surely its not.

Surely in a couple of years when the BoE goes up to 5/6% again then there will be trackers that sit just 2/3% above the BoE?

mcallister1

I agree. If you can only get a tracker then it should be for as short a time as possible?

dunstonh

So.. in what situation would a financial advisor suggest a tracker that sits 3/4% above the BoE is a good idea? Surely its not.

1 year or two back it would have been. Especially if its only short term or allows penalty free exit. Nowadays you would be looking more to fix or stay put (if remortgage is being considered).

Dont make the mistake of mixing up financial advisers and bank clerks selling C&G mortgages. They are a world apart.

kriss_boy

Luckily a friend of the family is an IFA but I dont want to waste his time until I get some more money in the bank.

TMoose

Also note that often the only choice you have on a new mortgage is Tracker or Fixed (reverting to SVR after a period of time).

The Fixed Rate for the period of it's fix 2/3/5yrs is likely to be significantly higher than the tracker, and so depending on your view of interest rates over that period, it may work out cheaper to track for that period. After that fix period ends the SVR and Tracker rates tend to be relatively similar, although at least with a tracker it is clear that your rate will track the Base Rate, and you're not as much at the mercy of the individual bank's decisions as to what their SVR should be.

Moose

kriss_boy

To be honest Ive never understood that detail.

Surely if you fix for 5 years then revert back to the lenders SVR then you are at the mercy of the lender for what rate that may be. Couldnt they just put you on 10% or 15% if they want? Or is there a logical reason as to why their SVR once the fix ends will be reasonable.

At least our tracker follows the BoE int rate which would anticipate would be consistent and reasonably predictable.

daveyjp

"Or is there a logical reason as to why their SVR once the fix ends will be reasonable."

Absolutely none, any reasonableness from banks disappeared years ago.

Reason trackers are so high is the "highly paid clever bankers" made such a mess a few years ago they need to show they have brains to get out of the mess, but this means ripping off customers.

There's no reason why a base rate tracker at 1-2% above BOE rate couldn't make money for the banks - they are still borrowing at less than 1%, but they have lots of bad debts on the horizon so need as much cash as possible to cover these debts.