16 mortgages borrowers cannot afford to ignore

The Bank of England has warned that rates will likely soon rise on the cheapest mortgage deals. Robert Powell finds out why and highlights 16 of the best deals currently around.

He who controls the present, controls the past: the slogan of George Orwell’s ruling party of Oceania in the novel 1984.

The same cannot be said of mortgage borrowing.

But that’s not to render a firm grip of the now completely redundant when it comes to home loans. In fact, a full awareness of the present is vital to controlling – or, perhaps more accurately, having limited control over – the future.

Take the Bank of England’s recent warning that mortgage rates could rise soon. The indicator lights of this impending price-up are sparking right now. And latching onto these signs now can help you get a grip on your financial future.

Edging up

I reported on the initial tremors of rate rises back in October. And since then, the ride has got a little rougher. Take a look at this table tracking the average interest rates of four types of mortgage since August:

	Two year fixed	Five year fixed	Two year tracker	Lifetime tracker
Now	4.24%	4.58%	3.39%	3.46%
November 2011	4.22%	4.67%	3.38%	3.31%
October 2011	4.22%	4.73%	3.58%	3.51%
September 2011	4.16%	4.89%	3.39%	3.53%
August 2011	4.27%	5.03%	3.27%	3.53%

Source: Moneyfacts.co.uk

As you can see, three of the four mortgage varieties have upped in price over the past month with only the five-year fix continuing to dip. The biggest of these price-ups can be seen in the tracker market.

Bearing the brunt of the rises

After dipping by a fifth of a percent in just one month running to November, average lifetime tracker rates have now bounced back by 0.15 points. It’s a similar story for two-year variables.

These rises can also be seen materially throughout the lending market.

Just this week Legal & General Mortgage Club upped rates on variable trackers with a maximum loan-to-value of 75% by up to 0.40%. Halifax also upped a pair of two-year trackers by a tenth of a percentage point each. And ING Direct has started to withdraw certain variable trackers, replacing them with rates increased by up to 0.20%.

These rises have been triggered by an incline in the LIBOR - the rate at which banks lend to each other - which has increased due to worries that Britain’s banks are exposed to the crisis in the Eurozone.

But these rate rises do not mean that tracker mortgages are always a bad choice.

Cheap tracker deals

At the bottom of this article I’ve put together a table highlighting 16 of the best mortgage deals currently around across the market. The lower table shows tracker rates.

Now, despite the face value of tracker mortgage suffering recent rate hikes, within the deal, the price is derived from the base rate. So if you took one out now, your monthly home loan outlay will only rise when the base rate rises.

Well, that's the case for a couple of years anyway, should you opt for a fixed-term tracker such as the Chelsea or Yorkshire deals in the table below.

While these products are currently scandalously cheap, after the set term they revert to the lender’s standard variable rate (SVR). And who knows what this could be two years down the line.

Lifetime mortgages

In my book, the best tracker mortgage to go for in the current climate is the lifetime option.These rates track at a specified percentage above base rate for the entire life of the mortgage, rather than just for a year or two, allowing you to take advantage of a permanently low rate. These deals also tend to offer the flexibility to switch out at any point, as they don't usually boast any early repayment charges.

HSBC currently has the best range of lifetime trackers offering 2.09% + base rate for a 30% deposit or 2.49% + base for a 20% deposit. Both have a £299 fee.

However if you are contemplating the lifetime tracker option, you’ll need to act fast as these deals are currently undergoing the steepest rate rises.

It’s also important to be completely positive that you’ll be able to afford the repayments if the worst was to happen and the base rate jumped substantially. If you can’t be sure about this, you may be better off with a fixed rate.

The safe choice

A fixed rate mortgage will guarantee your rate for a set term. This protects you from future rate rises and makes the monthly budget a lot easier.

Below I’ve listed a handful of shorter term two- and three-year deals. And while these may be suitable for borrowers who are unsure of their immediate future, it’s the five year deals that – for me – are the real bright sparks of this crowd.

Again, HSBC comes out close to the top with a 3.59% rate and £399 fee for borrowers who can find a 40% deposit. However, Chelsea’s 3.29% 70% LTV deal is also worth a look if you can stump up a hefty £1,495 deposit.

For borrowers with little cash to put into charges Britannia and Market Harborough Building Societies offer fee-free options: 3.59% for a 25% deposit and 3.99% for a 20% deposit respectively.

Ten fantastic fixes

Lender	Term	Interest rate	Max LTV	Fee
Santander	Two years	2.35%	60%	£1995
Market Harborough	Two years	2.69%	75%	£1595
Leeds BS	Three years	3.04%	75%	£799
Post Office	Three years	3.79%	85%	£995
HSBC	Five years	3.59%	60%	£399
Chelsea BS	Five years	3.29%	70%	£1495
Britannia	Five years	3.59%	75%	N/A
Market Harborough BS	Five years	3.99%	80%	N/A
Chelsea BS	Five years	3.99%	85%	£1495
HSBC	Five years	4.89%	90%	N/A

Six tremendous trackers

Lender	Term	Rate	Max LTV	Fee
Chelsea BS	Two-year tracker	2.19% (1.69% + base rate)	70%	£1495
Yorkshire BS	Three-year tracker	2.39% (1.89% + base rate)	75%	£995
First Direct	Lifetime tracker	2.38% (1.88% + base rate)	65%	£1499 (£149 redemption fee)
HSBC	Lifetime tracker	2.59% (2.09% + base rate)	70%	£299
HSBC	Lifetime tracker	2.99% (2.49% + base rate)	80%	£299
HSBC	Lifetime tracker	4.99% (4.49% + base rate)	90%	N/A

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