Mortgage lenders have almost doubled some of the margins on their tracker rates in the past week, while others have pulled out of the market altogether.

Last Monday HSBC, which had some of the most competitive tracker rates available, repriced its deals. Anyone with less than 25 per cent equity in their home and a £150,000 loan who wants to remortgage with HSBC will now pay £70 more per month than they would have done had they remortgaged the week before.

The rate on HSBC’s lifetime tracker is now 1.69 percentage points above the Bank of England base rate, giving it a pay rate of 6.19 per cent for anyone with a loan-to-value (LTV) of between 75 and 95 per cent. This was 0.94 of a point above base rate the previous week. The fee has also been increased, from £499 to £599.

Nationwide also increased its tracker margins last week by as much as 0.6 of a percentage point, wiping out any benefit new borrowers would have got from the half-point cut in base rate. On its lifetime tracker deal, new borrowers with less than 25 per cent to put down will pay a margin of 2.03 points above base rate, a rise on the previous margin of 1.43 points.

This follows moves by other lenders, such as the Woolwich, which has also increased its tracker rates, and Cheltenham & Gloucester, which has withdrawn trackers for anyone with less than a 40 per cent deposit or the equivalent equity.

None of these moves will affect existing tracker mortgage holders, who will see their mortgage repayments fall by half a point after the Bank of England rate cut.

Alliance & Leicester, meanwhile, pulled all its tracker deals from the market and has not said when, if ever, it will replace them. The Yorkshire building society made a similar move on 7 October and has still not replaced them. ‘It is possible more lenders will take a breather while they work out what to do next,’ says David Hollingworth of mortgage brokers London & Country.

Some discount rates - those that give a reduction on a lender’s standard variable rate (SVR) - now look good value. An HSBC tracker mortgage, for example, for anyone with a 60 per cent LTV, is at 5.69 per cent with a £599 fee. The lender’s discount rate for the same borrower is 5.29 per cent - the HSBC variable rate, less 0.96 of a point for the first two years.

But Hollingworth urges borrowers to be cautious. ‘Just because the discount looks cheaper now, you can’t bank on it staying that way,’ he says. ‘HSBC has already said it won’t be reducing its SVR in line with the base rate, whereas if you are on a tracker your rate has to mirror the base rate.’

For those who do want a tracker, Hollingworth recommends a 4.99 per cent two-year tracker from C&G, which comes with a fee of 2.5 per cent of the mortgage: ‘The rate is so good it’s worth considering.’ For those with a 90 per cent LTV, he recommends First Direct’s lifetime tracker, which tracks at 0.99 of a point over base and has a £399 fee.

Melanie Bien of Savills Private Finance says the rate rises are ‘disappointing’, but that a tracker is still the best option for those who don’t need the security of a fix, with economists expecting rates to fall as low as 2 per cent. However, she urges borrowers to read the small print. ‘Some trackers, such as those from Halifax and Nationwide, have a collar,’ she says. ‘This means if base rate goes below a certain level - 3 per cent with Halifax or 2.75 per cent with Nationwide - the full rate cut is not passed on. Lenders such as Abbey don’t have collars on their new deals, so you won’t be penalised if interest rates fall.’

Ray Boulger of mortgage brokers John Charcol says it is no surprise that lenders are pulling out or repricing deals, as the three-month Libor (London interbank offered rate) has not fallen in line with the base rate. He adds that the spread between the two rates looks set to widen as the base rate falls. ‘We are going to see tracker margins go up and fewer trackers to choose from,’ he says.

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Sellers who had been refusing to reduce the asking prices of their properties are starting to resign themselves to losses of as much as 20 per cent, say estate agents.

Figures from HM Revenue & Customs out last week show that the number of homes changing hands fell by 53 per cent over the previous 12 months, a figure suggesting that the government’s raising of the stamp duty threshold to £175,000, announced in the first week of September, has failed to kick-start the market.

‘It’s simply not worth selling unless you drop the price by at least 15 per cent - and that will make a difference,’ says Charles Peerless, director of Winkworth West End and Clerkenwell in central London. He recently advised the vendor of a two-bedroom apartment in Clerkenwell to cut their asking price from £575,000 to £495,000. ‘It can be very hard for people to accept that they have to reduce their asking price, but in most cases they understand that they now have to do it.’

In Ware, Hertfordshire, the owners of a three-bedroom townhouse cut the asking price from £275,000 to £250,000 and the house sold a week later. Daniel Carter of estate agents Jonathan Hunt, who sold the property, says: ‘If the owners of this house hadn’t dropped the price, it would still have been on the market today.’

According to Carter, sales that have gone through recently have done so solely because sellers dropped their asking prices: ‘There’s little sellers can do to push a sale through now other than be at tomorrow’s price today.’

In some instances, sellers who do not reduce their asking price still end up accepting much lower offers than they anticipated - Carter says he recently sold a property for £375,000 even though it was on the market for £415,000. ‘It got to the point that it had been on the market since May and hadn’t had any offers, and although there were other buyers interested in the property, none were in a position to proceed, so they had to go with the buyers that were.’

Sellers who rejected offers earlier in the year because they didn’t seem high enough may now be regretting their decision. The vendor of a two-bedroom apartment near Andover, Hampshire, rejected an offer of £300,000 in May. The property is valued at £275,000 and initially had an asking price of £325,000 - but this has since been cut to £295,000.

David Smith, senior partner at estate agent Dreweatt Neate, which is selling the Andover apartment, says: ‘It’s a significant price drop. With hindsight, it may have been better to have accepted that first offer. But at the end of the day, if something’s worth £300,000 and you’re asking £350,000, it’s still too much.’

Elsewhere, sellers with empty properties are in a hurry to shift them in order to avoid potentially high maintenance costs over the winter, such as heating problems or frozen pipework. ‘Some sellers have told us that they’ll take a lower offer - even lower than the value we have given the property - just so they don’t need to heat it or insure it during the winter,’ says Smith.

‘At the end of the day, if you have £200,000 in the bank today from the sale of a property, then at least your money is still worth something, against the uncertainty of how things might be six months down the line.’

While agents and property experts agree that there is still demand for family properties - first-time buyer properties are the least likely to sell - the number of buyers who have a mortgage lined up and are able to follow through with a sale is small.

‘A buyer who has secured lending and is ready to proceed with the sale quickly is very rare these days, and once a seller finds a buyer like that, you basically have to do whatever they want - including bringing the price down,’ says Smith.

But not every seller is prepared to do this. One Observer reader, who asked not to be named, put her two-bedroom maisonette in Kensington, west London, on the market for £365,000 in August. Her estate agent advised her to drop the asking price to £320,000, but she has been reluctant to do so and has had only four viewings since August.

‘We’d probably have had more viewings if we had dropped the asking price, but we know the flat is worth more than £320,000 and don’t want to put the asking price down if we could potentially get the full amount when things have improved in the market,’ she says. ‘We’re happy to wait it out for the next six to eight months.’

Other vendors, such as Sheila Gaunt from Buckinghamshire, are becoming resigned to not finding a buyer at all. Ms Gaunt, 58, put her three-bedroom cottage in Marlow on the market last month for £750,000. She has had three viewings, but doesn’t expect the property to sell soon. ‘I know that the likelihood of the cottage selling is really remote, particularly because of the way things are at the moment with the credit crunch, but I’m in a position whereby I have to sell right now,’ she says.

‘I would be willing to lower the sale price but, then again, it is priced in line with the cost of other cottages on my road. When I first decided to put it on the market, the different local estate agents were vying to be the ones to sell it. But in the last two to three weeks it’s been really quiet and there’s been no interest in my house at all.’

h.qureshi@observer.co.uk

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