Banks have been withdrawing cheap fixed-rate loans left, right and centre. Now the same is happening to discounted and tracker mortgages.
The Bank of England has hiked its base rate five times since last August, taking it from 4.50% a year to the present rate of 5.75%. Naturally, these rate rises have had an effect on the cost of fixed-rate mortgages, with interest rates and arrangement fees both increasing since the start of the year.
Of course, mortgage lenders always aim to maintain their profit margins, so when the cost of fixed-rate money goes up, they usually withdraw their most attractively priced fixed-rate home loans. As I warned in Hedge Your Home Loan, some lenders have pulled their entire range of fixed-rate deals, before re-pricing and re-launching more expensive mortgages.
Alas, it now appears that tracker mortgages (those which track the Bank of England's base rate) and discounted variable rate loans (those which offer a discount off a lender's standard variable rate) have joined in this vanishing act. So, as well as the great fixed-rate disappearing trick, we now have tracker and discounted rates being withdrawn overnight.
Indeed, according to broker John Charcol, the gap between fixed and variable rates has narrowed over the past week, largely because all variable rates at least half a per cent below bank rate have been withdrawn. A week ago, it was still possible to find Best Buy variable-rate deals at less than 5.25% a year, but it's no longer possible to borrow at these rates.
According to Fool.co.uk's independent, whole-of-market mortgage service, these are three of the cheapest variable-rate deals currently available:
Lender | Current rate | Follow-on | APR (%) | Upfront | Exit |
|---|---|---|---|---|---|
5.36% | 7.64 | 6.9 | 999 | 295 | |
Halifax | 5.39% | 7.75 | 7.9 | 1,499 | 225 |
Saffron BS | 5.45% | 7.59 | 7.6 | 899 | 130 |
As for fixed rates, here are two of the lowest rates currently on offer:
Lender | Fixed rate | Follow-on | APR (%) | Upfront | Exit |
|---|---|---|---|---|---|
Woolwich | 5.39% to 30/09/08 | 6.14 | 6.1 | 595 | 275 |
Market Harborough BS | 5.75% for two years | 7.55 | 7.5 | 799 | 135 |
You should note that most of these mortgages impose early redemption charges if you pull out during the special-rate period, plus a few levy higher lending charges, as well.
So, as you can see, there's not really much of a gap between the most attractive fixed-rate and variable-rate home loans nowadays. As I explained in To Fix Or Not To Fix?, it's up to you whether you opt for a fixed or variable rate -- and whether you go for a low-rate, high-fee deal or vice versa. That said, in my view, the Woolwich and Alliance & Leicester deals look pretty good value as things stand today.
More:Your Easy Guide To Mortgages | Your Easy Guide To Mortgages, Part 2