New borrowers hit as banks hike rates on tracker mortgages

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Halifax will become the latest of the major high street lenders to increase the interest rates for new borrowers on its tracker mortgages today, clawing itself back some lost profits after the strains of the credit crunch.

Rates on most of its tracker mortgages will increase by around 0.2 percentage points, with some products seeing hikes of as high as 0.24 – almost completely unwinding the benefit of this month's 0.25 percentage point rate cut. The bank is also pulling two of its fixed rate deals.

A spokesman for the bank said the rate hikes were being made to bring its pricing in line with the rest of the market, and stressed that the increases would only affect new customers. Halifax's move follows similar rate rises in recent weeks by competitors such as Nationwide, Abbey and Woolwich.

Although the Bank of England's Monetary Policy Committee has cut interest rates twice in the past three months, new borrowers, or those remortgaging, have not necessarily felt the benefits, as lenders have decided to increase the profit margins on their tracker products.

The best tracker deals are now some 0.18 percentage points above base rate. However, just 10 months ago – when interest rates were last at 5.25 per cent, as they are now – the best tracker deals were as far as 0.81 percentage points below base rate. Similarly, the best two-year fixed rates are now priced at around 5.5 per cent – compared with best buy rates of 4.8 per cent last April.

"Halifax was offering some of the leading tracker rates so is likely to have been inundated with business," Melanie Bien, a director at independent mortgage broker Savills Private Finance, said yesterday.

"This would explain why they have pulled these rates at such short notice," she added. "But borrowers will be concerned as to why they are being repriced upwards, given the cut in interest rates last week. It seems as if they are trying to improve their margins rather than chase market share as there is clearly an appetite among borrowers for decent tracker rates.

"There is a dearth of attractive deals out there at the moment, and market-leading rates are not around for long. If you see a deal you like the look of you should move quickly to secure it," Ms Bien added.

In contrast, fierce competition for deposits has seen savers enjoy a bumper crop of interest rates on savings accounts.