More pain as tracker deals lose their sheen

Life is certainly not getting any easier for first-time buyers and home owners looking to switch to a more competitive mortgage deal.

Until very recently, tracker mortgages - which shadow the base rate - were looking like a smart move amid forecasts that the Bank of England would make a series of interest rate cuts as it struggles with the credit crunch. But the Bank this week effectively warned that we should not expect a cut in interest rates for at least two years, because inflation is on course to rise above 3.5% over the coming months and then to stay high for quite a while.

At the same time, there were predictions that fixed-rate mortgages are about to become more pricey because "swap rates" - which determine the pricing of these deals - have been marching upwards during the past few days. "This will put pressure on fixed-rate pricing, even though Abbey and Nationwide have reduced some fixed rates. There is a danger now that lenders will be pulling and re-pricing fixes upwards with little notice," says Melanie Bien at mortgage broker Savills Private Finance.

There was a sliver of good news for those buyers able to stump up a bigger deposit when Abbey yesterday trimmed its new fixed-rate products in the 75% loan-to-value (LTV) range by up to 0.17%. Abbey says its five-year fix is now a "market-leading" 5.75%, though this deal carries a £1,499 fee. The bank has also reduced rates on all flexible- and tracker-rate mortgages by 0.05%. Unlike.....continued below

Advertisement starts

Advertisement ends

some of its rivals, Abbey will still go up to 95% LTV.

Nationwide yesterday cut the price of some of its fixed-rate mortgage deals by up to 0.3%. It is offering home buyers five-year fixes from 5.85% with a £599 fee (previously 6.15% with a £699 fee), and two-year fixes from 5.95% with a £599 fee (previously 6.1% with a £499 fee). The rates are slightly higher for those remortgaging.

guardian.co.uk © Guardian Newspapers Limited 2008