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Marketwatch 15/12/2008

Swaps had a mixed week, with longer term money rates increasing. It would be ironic if lenders used this as an excuse to increase their fixed rates after ignoring the recent massive falls.

1-year money is down 0.14% at 2.43%
2-year money is unchanged at 2.89%
3-year money is up 0.1% at 3.15%
5-year money is up 0.15% at 3.48%
Three-month LIBOR is now at 3.25%, well below the tracker rates on offer.

Lenders have gone quiet about how they fund from LIBOR rather than the base rate of late. Their arguments worked when LIBOR was high but since then it has plunged at the same speed as the base rate but we have not seen any corresponding falls in mortgage prices.

The Mortgage Works has launched a buy-to-let tracker deal. It’s priced at an eye-watering base rate plus 2.99% with a 2.5% fee for loans up to 70% LTV. Nevertheless it’s at the top of the best buy table.

Abbey has decided to introduce a product transfer fee when clients want to change their rates after applications have been agreed and surveys instructed.

While I understand the reasons for this – borrowers are keen to switch to cheaper fixes every time rates go down – applying the change retrospectively is unfair.

It appears that some Abbey BDMs have been using the switching process as a selling point to advisers.
But brokers will now have to go back to clients with existing applications and explain that it will cost them £199 to switch to cheaper rates.

This puts them in an awkward position and Abbey should indicate whether the transfer fee only applies to applications received from the announcement date.

I’m not sure whether the government was naive or just stupid to assume that if it helped banks with their funding they would do as they were told.

While I’m sure lenders are grateful to the government for bailing them out it’s dog eat dog market at the moment. Lenders that the government can lean on can’t afford to cut prices if their competitors do not.

Lenders that have taken money from Whitehall are desperate to repay their preference shares and will seize every opportunity they can to rebuild their margins and balance sheets.

The remaining lenders must be looking at the market with glee. There will be no significant new competition for the foreseeable future so the big players must realise that by default they can choose their market share without competing.

When the government next calls on lenders to pass on base rate reductions in their entirety, ask yourself why Northern Rock, which has been nationalised, can get away with cutting its SVR by only 0.5%? Clearly there is one rule for it and another for the rest.

Cheltenham & Gloucester grabbed my attention with its email announcing a two-year tracker at 3.69% up to 75% LTV.
At last, I thought, a tracker that is sensibly priced. But unfortunately my heart sank when I saw the 2.5% fee attached.

Why on earth would anyone opt for this deal when they could access the same lender’s 4.69% tracker with no fee, admittedly with a lower LTV of 60%?

And it has an even cheaper term tracker at 4.55% with no fee but with an extra year of early repayment charges.
C&G also has a two-year fixed rate at 3.89% with the same 2.5% fee. But this seems better priced than the no-fee 75% LTV two-year fix at 5.19% as there is a 1.3% yearly rate differential.

At first glance I was depressed to see HSBC committing to £15bn in mortgage lending next year, but on reflection at least it may force other lenders to price their deals more competitively.

Dear Santa, as I have been a good boy this year, please could you ask HSBC to pay me proc fees?



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