BRITAIN’S biggest lenders have sneakily increased the cost of their tracker mortgages by up to 0.45 percentage points in the past fortnight. New borrowers will get little or no benefit from next week’s expected quarter-point cut in Bank rate.

The moves mean hundreds of thousands of borrowers remortgaging off cheap deals taken out two years ago will pay up to £75 more a month, or £900 a year.

Figures from adviser John Charcol reveal that banks and building societies will make around £25m by raising their trackers in this way. If the Bank of England cuts interest rates next week as expected, the trackers will come down again – but they will only be back where they were before the cut.

The moves are doubly outrageous because rates in the wholesale markets, where lenders borrow from each other to fund our mortgages, have plunged by about 15% in the past few months.

Vicky Redwood, an economist at consultancy Capital Economics, said: “It is worrying that lenders are raising their rates at a time when financial-market conditions appear to be easing. This suggests that the need to recoup losses from the credit crunch continues.”

In the past two weeks, Bradford & Bingley and its subsidiary Mortgage Express have increased tracker mortgages by up to 0.45 percentage points. The average lender has raised rates by 0.3 percentage points in the past three months. Abbey, Britain’s second-biggest lender, raised 13 of its rates by up to 0.35 points last week, while Royal Bank of Scotland increased its deal by 0.32 points.

About 1.4m people are coming off cheap two-year fixes soon, and are seeking competitive deals to ease the shock. A typical borrower could have fixed at 4.25% two years ago, giving monthly repayments of £708 on a £200,000 loan. They will now have to pay about 5.49% for a tracker or 5.29% for a fix – or £915 and £881 respectively.

Katie Tucker, of online broker Charcol. co.uk, said: “Contrary to Alistair Darling’s call to lenders to pass on the full effect of rate cuts, this totally eradicates the effect and renders it worthless to many borrowers.

“Lenders are clearly still recouping their losses from the liquidity crisis, which does not bode well for borrowers on discounts or standard-variable rates. I suspect lenders will be as reluctant to pass on any Bank rate cut moving forward. Arguably, monetary policy does not have the effect that it used to, particularly as most people have other credit which accounts for a lot of their monthly debt repayments.” The cost of trackers has risen to the extent that some borrowers will now find they are better off with fixed-rate deals.

Richard Morea of L&C, a mortgage broker, said: “Market conditions have led to tracker margins being pushed up while the expectation in the money markets of further cuts in interest rates has enabled lenders to price fixed rates more competitively.

“As a result, fixed rates are on a par, and in some cases considerably below corresponding tracker rates.” For example, a borrower with a £200,000 loan could fix for two years with First Direct at 4.75%. With the fee included, the loan would cost £20,498 in total.

This works out cheaper than the best tracker, currently available from the Coop, which at 0.01% below the Bank of England base rate costs £21,959 over two years, with the fee included – although this comparison assumes a rate cut this month.

HSBC earned praise for trying to ease the “payment shock” last week when it announced that customers could remortgage onto their existing fixed rate when their current deal expired. The offer applies to HSBC customers who pay a fee if they choose to roll over their existing rate.

The fee depends on the size of the loan, the rate, and the length of the new fixed term. Customers have until April to take up the offer.

A borrower with a £200,000 loan who took out HSBC’s best fix at 4.99% in February 2006, can remortgage onto the same deal for a further two years for a fee of £1,000. Repayments on this loan work out at £1,168 per month – which are slightly higher than the best fix currently available, at 4.75% from First Direct, which has repayments at £1,140 per month. However First Direct has a higher arrangement fee of £1,498.

Morea said: “HSBC has not generally been a top performer in the fixed-rate market, so paradoxically this service could mean that while the borrower didn’t originally have the most competitive deal, they may now start to get better value.

“It is worth making sure that you compare the whole package against the rest of the market. If you switch, you may not get free legals and valuations, although in this case you will on the First Direct deal.”

If you want a fix, you will need to act fast, however, as some lenders have withdrawn their low-rate deals or increased rates after struggling to process the number of applications.

Leeds building society this week pulled a range of its home loans which had been available for only a day, while Bristol & West withdrew several rates after just six days. Halifax also pulled its best-buy two-year tracker earlier this month after only two days.

When scrutinising tracker deals, borrowers also need to be on the look out for early redemption charges as deals with no extended tie-ins are scarce.

Lloyds TSB has a two-year tracker at 0.18 points above the base rate, giving a pay-rate of 5.68% for a fee of £1,995 which comes with a free valuation and free legals on remortgages, and no penalties.

CAUGHT OUT BY A TWO-YEAR TRACKER

DAVID FARROW and his wife, Lilly, were applying for a two-year tracker mortgage with Nationwide when it lifted the interest by 0.05 points from 0.08% above the base rate to 0.13%.

The couple, from the Isle of Wight, are among hundreds of thousands of homeowners currently coming to the end of a cheap, fixed-rate deal.

They will continue their application with Nationwide for a £450,000 loan despite the increase, as they hope to benefit from a cut in official rates.

David, a property developer, said: ‘It’s anybody’s guess what’s going to happen with interest rates but we are hoping for a cut of at least half a per cent, which will make this rate worthwhile. We’re only tied in for two years, and we don’t expect rates to go up in that time.’