Wave goodbye to the cheap home loan
Cheap mortgages seem to be a thing of the past – at least in the current cycle. First we saw cheap rate fixed mortgages disappear to be replaced by fixed rates that were much more expensive. Now competitive trackers are fizzling out too. There are no longer any trackers at half a point or greater below the Bank of England’s base rate. Trackers follow the base rate at a set amount below for a fixed period, and could be cheaper than a fixed rate, but the gap between the fixed and variable rates has all but disappeared in recent weeks as banks and building societies react to the latest rate rise in July.
Experts still reckon there’s value in trackers. Some anticipate the base rate to peak at 6%, and that may not even be reached as the minutes from July’s Monetary Policy Committee (MPC) meeting indicated a recognition that the full impact of recent raises has yet to be felt by most consumers.
The tracker from Birmingham & Midshires was withdrawn last week. It was 0.51% below base rate and had a fee of £1,499. The building society still has a tracker at 0.76% below base rate, but that comes with a fee of 2% of the loan amount. A loan of £250,000 would therefore attract a fee of £5,000. Halifax also withdrew its tracker of 0.51% below base rate with a fee of £1,499.
It seems that lenders have already factored in the next rate rise – even though it may never come.
Trackers may still be the way to go so long as you can afford a further rate rise. This would work especially well if you think that the base rate may come down in 2008.
Nationwide’s latest tracker is at 0.37% below base rate for two years at a fee of £1,499. Cheltenham & Gloucester has a tracker at 0.17% below base rate for the whole mortgage term with no arrangement fee and no penalty charges, but it is only available for up to 60% loan-to-value.
Security of a set monthly payment only comes with a fixed rate mortgage. The arrangement fee is important. As a general rule, the bigger the loan, the more important the rate is, and the less important the fee is.