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Halifax, Britain's biggest lender, doubled the margins on some of its most popular mortgages last night.

The lender, owned by HBOS, is only the fourth bank to reissue tracker mortgages, after they were pulled en masse from the market last week in the wake of the Bank of England's reduction in interest rates by 1.5 per cent.

Rather than passing on the cut, however, Halifax has dramatically increased the margins on its home loans pegged to the base rate by up to 100 per cent over the past month.

Yesterday it reintroduced two-year tracker deals for borrowers with a 25 per cent deposit at a rate of 5.14 per cent, or 2.14 percentage points above the Bank of England's base rate. Halifax's best tracker a month ago was 1.04 per cent above base, meaning that the margin has jumped by 1.1 percentage points, or the equivalent of £93 on the monthly capital repayments of a £150,000 mortgage.


A new five-year tracker for borrowers with a 25 per cent deposit will now carry a rate of 5.39 per cent, or 2.39 points above base. A month ago Halifax was offering five-year trackers at 1.25 points above base, increasing the rate by 1.14 points, or the equivalent of almost £100 on the monthly repayments of a £150,000 mortgage. Last week the rate on the five-year deal was 1.75 per cent above base.

Mortgage experts expressed disappointment that the new rates were higher than those announced by Abbey, Lloyds TSB and Alliance & Leicester in the past two days.

David Hollingworth, of London & Country Mortgages, a broker, said: “Halifax appears to be barely competing with the latest deals that have been unveiled by its rivals.”

Mortgage experts said that Halifax has the option of imposing a 3 per cent “collar” on tracker deals, allowing it to avoid passing on future falls in the base rate to homeowners on tracker deals.

Trackers have proved to be particularly popular among homeowners looking to remortgage in recent months because of predictions that the Bank of England will continue to cut interest rates, leading to falling monthly repayments. However, lenders have pushed up margins on deals for new customers whenever the Bank of England has cut rates, reducing homeowners' ability to benefit from the Bank's reductions.

The Bank of England said yesterday that households were struggling with more personal and mortgage debt as a ratio of their income than during the recession of the early 1990s. Its Inflation Report revealed that the ratio of household debt to annual salaries had reached 170 per cent in the three months to June this year, compared with 105 per cent in 1991. It also showed that homeowners were devoting more of their pre-tax pay to paying off their mortgage than in 1991.

The Bank said that there were fewer mortgage repayment problems than during the 1991 downturn, but said that the problem is expected to worsen.

Mark Dampier, of Hargreaves Lansdown, the financial adviser, said: “The bottom line is that many households have over-leveraged themselves and, although lower interest rates will help, the situation is set to get a lot worse. People have so much unsecured debt and large mortgages, the main focus will be on paying it all back.”

The Government has pushed mortgage lenders to ease the pressure on homeowners by cutting their standard variable rates (SVR) in line with the Bank of England's 1.5 point cut last week. However, only about 10 per cent of mortgage borrowers have deals linked to the SVR.

HSBC, Woolwich, which is owned by Barclays, and Alliance & Leicester, along with most building societies, have still not decided whether they will pass on the cut in rates.

Halifax blamed its decision to extend tracker margins on the wide gap between three-month Libor, the interbank money market that banks use to fund new tracker lending, and the base rate. It said that three-month Libor fell by only 1.07 points the day after the rate cut. Libor is at its lowest point in four years, although it is still more than 1 per cent above base. Source: Times