Lloyds increases tracker margins

New mortgage customers with Lloyds TSB are bearing the brunt of higher margins on the bank's tracker mortgages following last week's interest rate cut.

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The move means that the lender is passing on just 0.9% or 0.8% of last week's surprise 1.5% base rate cut to new borrowers taking out a tracker deal.

The group, which also lends under the Cheltenham & Gloucester brand, has increased the rate it charges above the Bank of England base rate by between 0.6% and 0.7% on the deals.

The eve of the Bank's Monetary Policy Committee interest rate announcement last week saw the group, along with others, withdraw all of its tracker products, and so far it is only the second lender to relaunch them.

The change means that a two-year tracker for someone taking out a 60% mortgage who pays a £995 arrangement fee will have a rate of 4.89%, or 1.89% above base rate, compared with a rate that was previously 1.19% above base rate.

A comparable mortgage for someone with a 25% deposit now costs 5.09%, or 2.09% above base rate.

Lloyds TSB said it had priced the mortgages to reflect the current Libor rate - the rate at which banks lend to one another.

Copyright © Press Association 2008

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