Tracker Mortgages - Still Good Value?
Trackers Can Still Offer Good Value
The UK’s 11.7m mortgage holders face an increasingly uncertain future with their mortgages over the next couple of years. There are 800,000 people due to come off cheap fixed rate deals by the end of the year. All will face decisions on which way to go with the next mortgage. Most of them will find a very different mortgage world from the one they knew two years ago. They probably all know that base rates and mortgage rates have gone up, and that associated fees have also increased. They may well, however, find a world of difference between knowing it and seeing their own figures in front of them.
Some mortgage rates are on the way up again, but some fixed rate mortgages have been coming down. Fixed rate mortgages are priced against the swap-rate market, and not the increasing Libor rate. The swap rate forecasts where interest rates will be in the future and - given that the Bank of England’s brought base rate rises to a halt, and now there are forecasts for cuts – the swap rate has come down. As a result of this the Woolwich and the Leeds Building Society were able to offer good fixed rate deals, and they were followed by First Direct. The Woolwich, owned by Barclays, has a rate of 5.59% for ten years for anyone wanting a loan of less than 80% LTV. Leeds’s offer is 5.64% for two years.
So far this year, many home owners have opted to go for a fixed rate deal. According to the Council of Mortgage lenders, in July 79% of all mortgages were fixed rates. The figure was as low as 18% five years ago.
However, although fixed rates may look good for now, some experts are insisting that tracker mortgages still provide good value, especially as many economists believe that the interest rate cycle has reached its peak.
Anyone who takes out a tracker now will see their monthly repayments drop if the base rate falls next year from its current 5.75% level. A homeowner on a tracker with a £130,000 mortgage could pay more than £400 less over two years than on a top fixed rate deal.
In the past week, the UK's largest lender Halifax, together with Abbey, Bank of Scotland, Lloyds TSB Birmingham Midshires and Standard Life Bank have all increased some trackers for new customers by up to 0.2%, while some associated fees are also up.
Ray Boulger of broker John Charcol, expects more lenders to increase tracker rates. However, Barclays and Nationwide say they have no current plans to up their rates, and HSBC has even reduced its lifetime tracker rate, with no fees, from 6.54% to 6.44% (base rate plus 0.69%).
Nationwide's two year tracker is worth considering at 5.48% (0.27% under base) with a £599 fee. This works out at £797 per month on a £130,000 mortgage and £19,727 over the term assuming base rate remains the same.
That is only 54p more per month than Britannia's 5.49% two-year fix with a £999 fee - though Nationwide is £413 cheaper over the two years with the fees.
If base rate falls by 0.25% in six months, Nationwide’s deal will be £20 cheaper per month.
Published on September 26, 2007
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