Three years on from base rate hitting 0.5%, and with no change in sight, borrowers on variable mortgages are laughing all the way to the bank.
Trackers have never been so popular. This type of mortgage “tracks” the Bank of England base rate and, unlike lenders’ standard variable rates (SVR), will only change when the base rate changes. With some predictions for the first interest rate hike now suggesting we will have to wait until 2014, there's a strong argument that borrowers can take out a tracker while being reasonably confident they won’t be caught out by a rate rise in the near future.
Trackers come in two main types. The first will track at a specified percentage above the base rate for a specific period of time, two years for example, before then reverting to the lender's (typically higher) SVR. The other type of tracker is the lifetime tracker. As the name suggests, these track at a percentage above the base rate for the entire lifetime of the mortgage.
So which are the best tracker deals at the moment?
Platform two-year tracker
Owned by the Co-op, Platform is big on trackers at the moment. It has a two-year deal at 1.79% above base giving a pay rate of 2.29%. It’s a great rate but you’ll need a 40% deposit or equity to qualify. The deal comes with a £950 fee and early redemption charges (ERCs) for two years.
Accord two-year tracker
Yorkshire Building Society owned intermediary lender Accord has a two-year deal at 1.89% above base giving an initial rate of 2.39%. It’s available up to 75% loan-to-value (LTV) but has a massive £1,900 fee. It offers a reduced fee alternative at 1.99% above base with an arrangement fee of £900.
NatWest two-year tracker
NatWest is offering 2.09% above base (giving a rate of 2.59%) for two years. However the maximum LTV is 50% so it’s for equity-rich homeowners only. On the plus side, it’s completely fee-free.
Leeds Building Society two-year tracker
Well it’s almost two years – Leeds’ best tracker rate ends in December next year. At 2.19% above base (giving an initial rate of 2.69%) it has ERCs until next December, is available to those with a deposit of 25% and has a fairly cheap fee at £699.
L&C two-year tracker
Mortgage broker London & Country is offering a tracker at 1.99% above base for two years giving an initial rate of 2.49%. It’s available at 75% LTV but has a maximum loan size of just £150,000, making it only suitable for mortgages on the smaller size. It has a “floor rate” too of 2.49% so if the base rate were to fall (which is unlikely), the rate won’t fall. The deal comes with a medium £995 fee.
Nationwide three-year tracker
Nationwide’s offering a nice three-year tracker at base plus 2.29% (2.79%) for the years. It has a maximum LTV of 70% and a medium £900 fee.
First Direct limited edition three-year capped tracker
For those worried about the base rate suddenly shooting up, HSBC-subsidiary First Direct is offering a fee-free three year capped tracker at 2.38% above base (so an initial rate of 2.88%) at an LTV of 65%. It’s capped at 4.28% so you won’t pay more than that before March 2015. First Direct also offers slightly higher rates on capped trackers for higher LTVs.
First Direct offset three-year capped trackers
This range from First Direct has it all; protection from interest rate rises and an offset facility.
At an initial rate of 2.78% (base plus 2.28%) for three years it’s not the cheapest deal around so it’s only worth it if you’re going to make good use of the offset facility. The fee is a potentially confusing “£499 per £400,000 of borrowing or part thereof”.
ING term tracker at 60% LTV
Term or lifetime trackers last for the life of a mortgage which is great if you don’t expect rates to rise in the next few years and predict they’ll stay on the low side for the long-term. ING has a term tracker at 60% LTV at 2.74% above base (an initial rate of3.24%). There are no ERCs at any time and a cheap-ish £750 fee.
ING term tracker at 75% LTV
For those with a smaller deposit, ING also offers a 75% LTV term tracker with an initial rate of 3.44%, again with no ERCs and a £750 fee.
Woolwich lifetime tracker
Barclays' mortgage arm Woolwich is always big in the lifetime tracker arena. Its current offering is base plus 2.99% for term (an initial rate of 3.49%). However ERCs apply for two years, there’s a £999 fee and a maximum LTV of 70%.
HSBC fee-free lifetime tracker special
You’ll have to go direct as HSBC doesn’t deal with brokers, but HSBC’s New Year sale includes waiving fees on tracker mortgages until 31 January. Its lifetime tracker is available at 60% LTV and tracks the base rate plus 1.89%, giving an initial rate of 2.39%. It has some other decent lifetime trackers at higher rates for borrowers with a smaller LTV.
More: Protect your cash from an interest rate rise | Property hotspots in 2012
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Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.
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