Marketwatch 01/12/2008

Swaps continued to fall rapidly last week and one-year swaps dropped below 3%. But these reductions have not been passed onto borrowers so far. The biggest discrepancies seem to be in five-year fixed rates, where best buys are around 5%. This means there are 1.3% margins even on 60% LTV deals.

With the prospect of future base rate cuts, I think most consumers are expecting deals to get cheaper so why would anyone opt for 5% products? Trackers with the option to switch to fixed rates look much better value.

That said, before the latest base rate cut, three-month LIBOR was 5.77% and best buy trackers were 1.19% over base with headline rates of 5.69%.

Then the base rate was cut by 1.5% and LIBOR at the time of writing had fallen by more than 1.75% to 3.94%. Yet best buy trackers are still 1.79% over base. I’d like to hear lenders explain this disparity.

I am thinking of starting a campaign entitled ‘Save the tracker’. Although they still represent better value than fixed rates, they have more or less become extinct or are priced at levels that would challenge even the most affluent borrowers.

But with newspaper headlines telling us how far the base rate will plummet, borrowers will want to take advantage of future cuts.

I’m surprised Nationwide doesn’t have any trackers weeks after the rate cut. I thought it didn’t need the wholesale markets to lend but the rates it is offering right now are weaker than normal and its two-year fixed rates are a long way off the best buys. It’s currently offering a two-year fix at 4.88% with a £995 fee up to 60% LTV. It’s fine for chancellor Alistair Darling to talk about forming another working party to get lenders lending again but it’s not going to work.

Hopefully Darling will persuade the European Union to let him guarantee some mortgage-backed securities. Now that would get lending moving again.

But I don’t think he understands that by allowing banks to pull down the shutters, reduce LTVs, fail to cut rates and use ‘computer says no’ arguments on credit scoring, the housing market will continue to plunge.

I’m sure it’s easy for lenders to get business simply by having rates. There is a danger that with so few of them left, competition will be snuffed out of the market and borrowers will end up paying more.

I bet brokers are hoping that the Lloyds TSB/HBOS merger would not go through because of the devastating impact it will have on competition.

It was a shame to see Northern Rock hike the cost of its one-year fixed rate at 3.99%. While Woolwich had a one-year fix at the same rate, it featured two years of early repayment charges whereas borrowers weren’t tied in beyond 12 months with NR’s deal. The new rate is 4.19% with a £995 fee for loans up to 65% LTV.

The current Northern Rock product guide is wafer thin at 12 pages. I remember the good old days when it was twice as long.

I don’t think Bradford & Bingley will be as successful in reducing its mortgage book as Northern Rock has been. The reversionary rates on its buy-to-let book look great value at the moment and I am sure many of its more recent 85% LTV mortgages are better than those on offer today for buy-to-let business.

I am sure this is the case for a lot of buy-to-let remortgage business. Why would anyone pay 2.5% to go through the trauma of revaluations to get rates 1% more than they can source for free with existing lenders without ERCs?

If lenders are desperate to clear their buy-to-let books they will need to come up with more generous ways to encourage borrowers to leave.