Lifetime tracker mortgages: why have they disappeared?

astal · 10 April 2018 at 12:07PM

Hi all,

I have a lifetime tracker mortgage since 2012. Quite happy with that. Changed it already twice as lower LTV meant better rates. I was now looking to change it again, only to find out that this structure is not available by my bank. Only two banks offer such structures with not very competitive rates. On the other hand, all banks seem to offer2 year tracker mortgages, which has two consequences

means you need to re-structure it only after 2 years, with two consequences:

1. You can only re-structure it only after 2 years, hence losing the benefit of the tracker that is not fixed
2. You are forced to re-structure it in 2 years, to possibly something that you don’t like, given the chances that lifetime tracker won’t be available at the time (as now)

So: why have lifetime tracker mortgages been somehow disappeared from the market?
Are they coming back soon or not?
Is it sensible to go for the 2-year tracker, even with lower rates, under these circumstances?

Many thanks.

kingstreet · 10 April 2018 at 3:26PM

Plenty of lenders are still losing money on pre-crunch lifetime trackers at base + 0.5% and so on.

If they priced new products how they would like, probably base + 2.5%, or base + 3%, no-one would buy them.

astal · 10 April 2018 at 3:41PM

I don't think any lender is losing money. Some pre-crunch lifetime trackers were at base -1%(!!). When base came to 0.5%, they were not paying +0.5%, but instead used a floor at zero, so effectively these are 0% now. Probably 0.01% or so. Of course, this may indeed appear as "losing money".

Base +0.5%, or generally base + X% (where X>0), means that X is pure margin for the lender. This is never losing.

HSBC used to have very good lifetime trackers. They haven't got any now. They offer a 2-year tracker at 1.19% (base + 0.69%) for LTV<60%. This is what I am after. I have a lifetime base+1.29% and my question is whether it is worth adopting the base+0.69% for 2-years.

The risk is if I can't find any tracker in 2 years.

Seeing all lenders offering 2-year trackers, and only two banks (Barclays and Satander) offering lifetime ones, makes me think there might have been some regulation issue that I missed.

Radiantsoul · 10 April 2018 at 10:39PM

Mortgage companies cannot necessarily borrow at base rate. So the +x is not necessarily pure profit.

I also suspect that fixed rates are more popular. A 10 year fix is about 2.7%, a tracker at +1% or +1.5% looks unappealing if base rates are going to be 2-3% in a couple of years.

getmore4less · 11 April 2018 at 6:56AM

Some(maybe a lot) of people on trackers were follow on rates after a product expired, they were the SVR of the day at that time.

Nationwide BMR is an example that was Base+2% but there were loads at lower rates.

Even BMR at base+2% was competitive for a few years after the crash,
for those with good LTV there were better options as fixes were coming in at base+1%-1.5%.

We are bobbing along at the bottom of base rate which start to favour the fix market over tracker market

For short term trackers the rate needs to be lower than the equivalent fix period to make any sense unless you need a feature of the tracker like unlimited OP or no ERC.

Short term good LTV mortgage rates(1.5%) are lower than some savings options(2% for 2y bonds).

I have not looked everywhere,
FD : base+2% lifetime
Barclays : base+1.74% on 80%LTV offset product.

A 10y fix is potential a better option for many, with shorter term fix options well below these trackers rates.

here is an article from 2016
http://www.thisismoney.co.uk/money/mortgageshome/article-3633367/Lifetime-tracker-rates-base-rate-notoriously-hard-hold-of.html

astal · 11 April 2018 at 7:01AM

Mortgage companies cannot necessarily borrow at base rate. So the +x is not necessarily pure profit

Isn't the definition of the Base rate that it is the rate at which lenders can borrow money from the Central Bank if they need to?

(Real question; not one just making a point).

Edi81 · 11 April 2018 at 7:09AM

But in reality banks borrow from each other, issue debt to institutional investors eg pension funds.
These are not at BOE rates.
Plus, the margin they make is before the cost of running the business,bad debt etc so a lot of these historic low rate trackers are either loss making or not economically viable.

AnotherJoe · 11 April 2018 at 10:01AM

astal wrote: »

I don't think any lender is losing money. Some pre-crunch lifetime trackers were at base -1%(!!). When base came to 0.5%, they were not paying +0.5%, but instead used a floor at zero, so effectively these are 0% now. Probably 0.01% or so. Of course, this may indeed appear as "losing money".

Base +0.5%, or generally base + X% (where X>0), means that X is pure margin for the lender. This is never losing.

HSBC used to have very good lifetime trackers. They haven't got any now. They offer a 2-year tracker at 1.19% (base + 0.69%) for LTV<60%. This is what I am after. I have a lifetime base+1.29% and my question is whether it is worth adopting the base+0.69% for 2-years.

The risk is if I can't find any tracker in 2 years.

Seeing all lenders offering 2-year trackers, and only two banks (Barclays and Satander) offering lifetime ones, makes me think there might have been some regulation issue that I missed.

Of course it's not "clear margin" if by that you mean profit, running a business doesn't cost zero, so subtract Y (cost of operations ) from X. That could easily lead to a negative number when X is just half a percent.

Then consider that they are also lending on other basis such as fixed, variable etc, and those make a certain profit margin, call that Z. Why would they introduce a new lifetime tracker that had a margin less than Z, and if X-Y is less than Z, they certainly won't.

astal · 11 April 2018 at 10:17AM

ok. I accept what you all say. X is not always a profit for all those reasons.

The remaining question is what changed between 6, 4 and 2 years ago (when I got the lifetime tracker and adjusted it with the available offers at the time), and 1 year ago (last time I checked) that all banks were offering lifetime trackers, and possibly none was offering a short term 2 year tracker, vs. today when no bank apart from two, offers a lifetime tracker product, and all of them offer just a short term 2-year tracker?

It seems to me as a market structure change, but I can't link it to any sort of news or regulation change.

For example: HSBC offered a
lifetime BoE+1.29% for LTV <60% (which I got) in 2016 (which was subsequently reduced to 1.19%, but missed it)
and today they have no lifetime tracker, but they have a
2-year BoE+0.69% for LTV<60%.
The very low X=0.69% means they can cover all other Y costs and it could be comparable with Z margin.
I understand that if they had a lifetime product, it would be greater than X=0.69%. Say 0.99%. Why not?

getmore4less · 11 April 2018 at 11:58AM

astal wrote: »

ok. I accept what you all say. X is not always a profit for all those reasons.

The remaining question is what changed between 6, 4 and 2 years ago (when I got the lifetime tracker and adjusted it with the available offers at the time), and 1 year ago (last time I checked) that all banks were offering lifetime trackers, and possibly none was offering a short term 2 year tracker, vs. today when no bank apart from two, offers a lifetime tracker product, and all of them offer just a short term 2-year tracker?

It seems to me as a market structure change, but I can't link it to any sort of news or regulation change.

For example: HSBC offered a
lifetime BoE+1.29% for LTV <60% (which I got) in 2016 (which was subsequently reduced to 1.19%, but missed it)
and today they have no lifetime tracker, but they have a
2-year BoE+0.69% for LTV<60%.
The very low X=0.69% means they can cover all other Y costs and it could be comparable with Z margin.
I understand that if they had a lifetime product, it would be greater than X=0.69%. Say 0.99%. Why not?

it would be more than 1% more like closer to 2%

That HSBC deal comes with a £900-£1k fee to cover costs

you can't chase rates down forever and expect every time you look there will be something lower. there comes a point you have the best(ish) there will be then stick with it for a long time especially if there are fees to scrape a tiny % off the rate it can take years to recover.

astal · 16 April 2018 at 4:42PM

The difference of 1.79% (lifetime) and 1.19% (tracker for 2 years) is about £80 per month for me. So, the £900 cost will be paid in around 1 year. No downside within the 2 year period, as both are trackers.

Only downside is if the tracker (of whatever period) 2 years from now is worse than the current 1.29% + BoE, which is already 0.5% higher than the current 2 year tracker. So, even a 0.5% rate increase can be digested, given that all economy is in the same state as now.

This is my dilemma.

Lifetime tracker mortgages: why have they disappeared?

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