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    • astal
    • By astal 10th Apr 18, 12:07 PM
    • 11Posts
    • 2Thanks
    astal
    Lifetime tracker mortgages: why have they disappeared?
    • #1
    • 10th Apr 18, 12:07 PM
    Lifetime tracker mortgages: why have they disappeared? 10th Apr 18 at 12:07 PM
    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 donít like, given the chances that lifetime tracker wonít 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.
Page 1
    • kingstreet
    • By kingstreet 10th Apr 18, 3:26 PM
    • 34,495 Posts
    • 18,736 Thanks
    kingstreet
    • #2
    • 10th Apr 18, 3:26 PM
    • #2
    • 10th Apr 18, 3:26 PM
    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.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
    • astal
    • By astal 10th Apr 18, 3:41 PM
    • 11 Posts
    • 2 Thanks
    astal
    • #3
    • 10th Apr 18, 3:41 PM
    • #3
    • 10th Apr 18, 3:41 PM
    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
    • By Radiantsoul 10th Apr 18, 10:39 PM
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    Radiantsoul
    • #4
    • 10th Apr 18, 10:39 PM
    • #4
    • 10th Apr 18, 10:39 PM
    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
    • By getmore4less 11th Apr 18, 6:56 AM
    • 33,644 Posts
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    getmore4less
    • #5
    • 11th Apr 18, 6:56 AM
    • #5
    • 11th Apr 18, 6:56 AM
    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
    • By astal 11th Apr 18, 7:01 AM
    • 11 Posts
    • 2 Thanks
    astal
    • #6
    • 11th Apr 18, 7:01 AM
    • #6
    • 11th Apr 18, 7:01 AM
    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
    • By Edi81 11th Apr 18, 7:09 AM
    • 576 Posts
    • 532 Thanks
    Edi81
    • #7
    • 11th Apr 18, 7:09 AM
    • #7
    • 11th Apr 18, 7:09 AM
    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
    • By AnotherJoe 11th Apr 18, 10:01 AM
    • 11,859 Posts
    • 13,833 Thanks
    AnotherJoe
    • #8
    • 11th Apr 18, 10:01 AM
    • #8
    • 11th Apr 18, 10:01 AM
    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.
    Originally posted by astal
    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
    • By astal 11th Apr 18, 10:17 AM
    • 11 Posts
    • 2 Thanks
    astal
    • #9
    • 11th Apr 18, 10:17 AM
    • #9
    • 11th Apr 18, 10:17 AM
    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?
    Last edited by astal; 11-04-2018 at 10:29 AM.
    • getmore4less
    • By getmore4less 11th Apr 18, 11:58 AM
    • 33,644 Posts
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    getmore4less
    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?
    Originally posted by astal
    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
    • By astal 16th Apr 18, 4:42 PM
    • 11 Posts
    • 2 Thanks
    astal
    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.
    • Thrugelmir
    • By Thrugelmir 16th Apr 18, 5:25 PM
    • 61,352 Posts
    • 54,593 Thanks
    Thrugelmir
    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?
    Originally posted by astal
    Yes overnight to balance their books. The BOE uses other measures to provide banks with longer term liquidity. None of this is lifetime though. All a preset duration. Where upon the money has to be repaid.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • Thrugelmir
    • By Thrugelmir 16th Apr 18, 5:27 PM
    • 61,352 Posts
    • 54,593 Thanks
    Thrugelmir
    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.
    Originally posted by astal
    More likely a market that other lenders have no wish to enter currently. As they already have sufficient legacy business that's costing them money.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
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