Spotlight: Tracker mortgages

A small number of banks – notably Lloyds TSB, Abbey and Alliance & Leicester – relaunched into the tracker mortgage market this week, but increased their margins. Tracker mortgages are mortgages whose rates move in line with the Bank of England rate.

Most lenders pulled out of the tracker market last week, after the Bank of England's 1.5 percentage point rate cut – and it was expected that the new trackers would be cheaper. But banks are clearly keen to preserve their profits. A&L's new range is priced at 1.89 percentage points above the Bank of England rate, while Abbey's are priced at 1.99 points above – giving a pay rate of 4.99 per cent. Before the rate cut, Abbey was offering a tracker at 1.29 percentage points above the Bank rate.

Lenders are reluctant to grant tracker loans to those without plenty of equity in their property. Abbey and Lloyds are only offering trackers for loans of up to 75 per cent of a property's value. A&L will only do a maximum of 60 per cent.