My tracker & the credit crunch?

setmefree2

In the light of the fact that Nationwides rates are heading north whilst BOE rates head south, I was wondering about my tracker. I have a Woolwich/ Barclays Tracker which is tracking the BBBR - the Barclays Bank Base rate. The BBBR has always tracked the BOE rate but could this change? Do banks' base rates always follow the BOE rate?

Many Thx

SMF2

dwsjarcmcd

Your current products T & C's won't change. Banks base rates are very different from tracker rates, their SVR's are 'managed' rates and a lender can move them up or down irrespective of what happens to the BoE rate. Trackers are, however, contractually obliged to move with the BoE rate.

David

setmefree2

So - scuse my lack of knowledge - does that mean high street type banks have to move their base rates as the BOE move their base rates? Or can banks put up their base rates even if the BOE lower theirs. I do understand that the SVR is different - just don't understand the link between BOE rate and banks' base rates...so if the BOE goes south does that mean Banks' base rates go south too?

Thx

dwsjarcmcd

With your tracker mortgage, you bank MUST adjust the rate in line with any movements of the BoE rate.

Their is no link between BoE rate and lenders SVR.

David

seraphina

Your mortgage is tracked to the Barclays base rate, NOT the Bank of England base rate.

IIRC, there is no obligation for Barclays to move their base rate in line with the Bank of England's base rate. So, in theory, it is possible for the Bank of England to cut rates, but for Barclays to keep theirs constant. Not sure about the probability of this happening though.

setmefree2

So the banks are not enforced to move their base rates in line with BOE base rates? Does anyone know if this has ever happened? I suppose what I'm asking is it possible or likely that the BOE will reduce base rates but the banks will start increasing theirs? (I know you don't have a crystal ball!)

dwsjarcmcd

setmefree2 wrote: »

So the banks are not enforced to move their base rates in line with BOE base rates? Does anyone know if this has ever happened? I suppose what I'm asking is it possible or likely that the BOE will reduce base rates but the banks will start increasing theirs? (I know you don't have a crystal ball!)

Yes it has happened many, many times, not just by banks but also by Building Societies. When a rate change happens, banks and buildings societies will determine what happens to their SVR's and savings rates based on financial considerations, how competative they are, or want to be.

If there is a reduction in the BoE rate soon, it would not surprise me if many banks and building societies didn't pass on the full cut via their SVR's or savings rates.

This is very different from a 'tracker' product, beit mortgage or savings which must follow the BoE.

David

dwsjarcmcd

I should have added that I would be surprised if SVR's were actually increased following a BoE cut.

Gorgeous_George

BofE BR is the Bank of England Base Rate. This is set by the Band of England and is the figure you see on TV on the first Thursday of the month when the Monetary Policy Committee announce their rate decision. Many tracker products track the BofE base rate.


SVR is Standard Variable Rate. Typically a couple of percentage points above the BofE BR but can be more (or less). One bank may have an SVR of 7.5% and another an SVR of 9.5%. They can choose any number they wish depending on how competitive they wish to be. At the moment, they do not seem to want to be competitive.


BBBR is Barclays Bank Base Rate. This is set by Barclays Bank and has pretty much matched the BofE BR for many years. However, if a bank or banks got into financial difficulties, Barclays could set whatever rate they wanted.

GG