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One of the UK's biggest mortgage lenders today announced increases to the cost of its tracker mortgages, two days before the Bank of England is expected to cut the official cost of borrowing.
Abbey is increasing rates on its two- and three-year tracker mortgages, which automatically move up and down in line with the Bank of England base rate, by up to 0.5%.
Borrowers will now be offered a two-year tracker deal with a rate 1.79% above the base rate, or a three-year deal with a rate 1.69% over the base rate.
The increase means a borrower with a £150,000 mortgage moving their loan to a two-year Abbey tracker deal will pay £46 more each month.
The move, which will only apply to new mortgages, comes ahead of the latest decision on interest rates, which is due on Thursday.
The monetary policy committee is widely expected to cut interest rates by at least 0.5% from the current 4.5%, with some economists predicting a 1% reduction.
Abbey defended the increase saying it was in response to rival moves, adding that it continued to offer market-leading two-, three- and five-year fixed-rate mortgages.
A spokesman for the lender said: "Recent moves by competitors increasing tracker rates and withdrawing products has resulted in today's decision, which takes effect from Wednesday November 5.
"Despite difficult market conditions Abbey has continued to provide competitive mortgage deals for all our customers across our range and continues to do so."
The group also announced it was withdrawing its tracker products for people borrowing 85% of their home's value, with buyers now needing at least a 25% deposit to qualify for one of the deals.
It is continuing to offer a five-year fixed-rate mortgage to people with deposits of between 5% and 20%, but all other loans are now restricted to people borrowing 75% or less of their property's value.
Very little choice
Abbey is the latest major lender to hike its tracker rates, following similar moves by Nationwide, HSBC and Halifax.
Ray Boulger, senior technical manager at mortgage broker John Charcol, said all of the big lenders had now raised tracker rates.
"Lenders are widening their margins and stopping lending above 75% loan-to -value - there is very little choice. The problem is trackers are the product that most people who do not need the security of a fixed rate should be going for now."
Lenders are struggling with wholesale funding costs that have remained stubbornly high despite last month's 0.5% reduction in the base rate to 4.5%.
The key interbank lending rate - the three-month Libor - has only just fallen from 6.27% (1.27% above the Bank's base rate) on October 8 to 5.73% (1.23% above base rate) today.
Despite this reduction the rate remains historically high in relation to the base rate, and does not reflect this week's widely anticipated interest rate cut.
Rate cut warning
It is not only borrowers seeking tracker deals who look set to not benefit when rates are cut this week.
Despite calls from the government for lenders to pass on October's emergency 0.5% reduction, only 54 out of the UK's 96 lenders with a standard variable rate (SVR) mortgage have so far cut their rate.
HSBC, which failed to pass on any of last month's reduction to its SVR customers, warned yesterday that it and other lenders may not pass on any cut made this month to customers.
David Hodgkinson, chief operating officer at HSBC, said there could be some "stickiness" even if the Bank of England reduced rates as expected on Thursday, adding that credit had been "mispriced" over recent years.
But business secretary, Peter Mandelson, warned today that consumers would be "surprised and disappointed" if the banks failed to pass on any cut to their customers.
He said that restoring credit lines had been one of the conditions of the government's bail-out when it took a £37bn stake in some of the country's leading high-street banks.
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