Nationwide hikes tracker rates for new mortgages

Britain's biggest mortgage lender today announced it was hiking its tracker rates for new borrowers despite last week's interest rate cut.

Nationwide said it was raising the cost of tracker deals taken out from tomorrow by between 0.06% and 0.3%.

But because the Bank of England base rate was cut by 0.5% last week, the changes effectively mean the deals are being increased by up to 0.8%.

A three-year tracker mortgage for someone borrowing 90% of their home's value will now be 6.49%, or 1.99% above base rate, compared with 6.19% or 1.19% above base rate previously.

The news came as nationalised bank Northern Rock became the first lender to say it was not passing on the full 0.5% reduction in the official cost of borrowing to its standard variable rate (SVR) customers.

Instead the group said it was reducing the rate by just 0.15% to 7.34% from November 1.

The move is particularly bad news for borrowers who had previously taken out 100% and 125% mortgages with the group and have found they are unable to remortgage in the current more risk averse climate when their deal ended, meaning they are effectively stuck on the SVR.

Nationwide defended its decision to increase its tracker rates, saying the move enabled it to control the volume of business it was attracting.

Matthew Carter, divisional director of mortgages at Nationwide, said: "The changes we are making will allow us to maintain control of the volume of business the society is attracting, and continue lending in a prudent and responsible way."

A 0.3% increase in mortgage rates adds £28 a month to repayments on a £150,000 mortgage, while a 0.8% one increases them by £76 a month or £900 a year.

Nationwide's decision is similar to one announced by Abbey on Friday, with the group saying it was not changing its tracker rates for new borrowers following the interest rate cut.

The problem for many lenders is that the key inter-bank lending rate, three-month Libor, failed to respond to the cut in interest rates, meaning their own funding costs have not fallen.

The rate, upon which tracker deals are based, actually rose slightly following the Monetary Policy Committee's announcement, increasing to 6.09% or 1.59% above base rate. It has since eased only slightly to 6.08%.

Nationwide has not yet said whether it will be reducing its SVR, known as the base mortgage rate, following last week's cut, but it is expected to make an announcement later this week.

So far just 13 out of more than 100 lenders have announced they will be reducing their SVR, including some major players such as Halifax, Lloyds TSB and Cheltenham & Gloucester, Barclays' lending arm the Woolwich and the Royal Bank of Scotland Group.