The best variable mortgage deals

Turbulent times for the wider economy means interest rates are likely to stay low for the foreseeable future. Make the most of low rates with one of these top variable mortgage deals, says Christina Jordan.

During the summer many economists and politicians predicted that the UK economy would come out of recession during Quarter 3 of this year. So it came as quite a surprise to learn last month that in fact it continued to shrink between August and October, decreasing by 0.4%.

The UK officially entered recession in January following two full consecutive quarters of negative GDP growth. Now some analysts hope that Quarter 4 will see a return into positive territory.

However, the fact that we are still in recession means interest rates are likely to stay low for the foreseeable future. Indeed some experts now believe they could stay at their record low of 0.5% for most of next year.

If interest rates are to remain low, that means variable rate mortgages will also remain low. And this makes the low-priced tracker deals currently available look even more appealing compared with the safe but more expensive fixed rate options. After all, it's only worth paying a premium to fix if you think rates are going to rise during the fixed rate period.

Fuel to the fire

Another factor that could influence interest rates is house price movement, and most indices have shown consistent growth in house prices over the last eight months or so.

Even better, the most recent indices illustrated measured growth -- the sort that looks sustainable, not the rises we saw in the summer months that looked a little bit too rosy and a little bit too volatile. The last thing the housing market needs is for prices to rise too quickly.

Indeed, October growth was measured. Prices still rose according to Halifax and Nationwide but the increases were modest. Nationwide noted growth of 0.4% compared to an increase of 0.9% in September and 1.4% in both July and August.  It now pegs the average house price at £162,038, 2% higher than last October.

Some commentators have added that this more sustainable house price growth is good news for mortgage borrowers as it means that the Monetary Policy Committee is likely to leave interest rates lower for longer. Another tick in the tracker box!

Of course the driving factor influencing the Bank of England when it sets Base Rate is the control of inflation. The Bank said this week that it expects inflation, currently at 1.1%, will move above the Bank's 2% target in the next few months, before dropping back to around 1.6% within two years.

So rates are unlikely to have to rise to deal with inflation anytime soon.

Mortgage market movement

The mortgage market has been unusually active in the last month with lenders chopping rates left, right and centre, and Northern Rock in particular coming out with some storming new mortgages - fixed and tracker rates.

Abbey and Nationwide have also launched some cracking deals and the usual market-leaders HSBC and First Direct are still up there with the best of them at the top of the best buy tables.

One newly launched mortgage (which will be available from Friday 13th November) is a stepped tracker rate from Yorkshire Building Society.

The deal is available up to 75% loan to value, and is priced at:

Base Rate plus 3.49% in year one (currently 3.99%)

Base Rate plus 2.49% in year two (currently 2.99%)

and Base Rate plus 1.49% in year three (currently 1.99%).

OK, so the year one rate isn't exactly the most exciting deal on the market (though the fee is small at £495), but look at year three. Now it looks much more appealing. And of course if rates rise over the next three years (which is pretty much a dead cert!) that year three margin is virtually unbeatable (Woolwich's headline-grabbing 1.98% tracker just pips it but that only lasts for a year).

So if you can stomach paying over the odds now and think rates will go up, the Yorkshire Building Society deal is one to consider. Though remember there is always the option of just going for a fixed rate.

Woolwich has also announced today it will further cut its best buy tracker rate and introduce a 75% loan-to-value tier for the first time since the start of the recession (see table below).

While all types of rates have been cut in recent weeks it's the trackers that borrowers are really going for, with some brokers noting that two-thirds of borrowers are opting for a variable deal and just a third are fixing. And who can blame them given the outlook for interest rates?

If you want a tracker, see below for some of my favourite current deals:

13 top tracker deals

*first-time buyers only

**£595 fee for purchase customers only, remortgagors pay £995

Find the best tracker

If you need help finding the best tracker deal, use our resources.

First, watch this video: Getting through the mortgage maze

Next, use lovemoney.com's innovative new mortgage tool to find the best mortgage for you online

And finally, why not have a wander over to Q&A and ask other lovemoney.com members for hints and tips about what worked best for them?

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 4045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

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 will revert to the lender's standard variable 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.