Fix for the Future?

After the latest MPC Meeting it was announced that the Base Rate of Interest had been reduced to 2.00%. This provided some much needed relief to all of our clients on Base Rate Tracker Mortgages as their monthly mortgage payments were reduced.

Immediately afterwards there was a lot of press coverage regarding the Halifax and Nationwide Building Society as they intended to impose a collar on their tracker mortgages to ensure that they did not drop below a certain threshold. After much negative publicity they decided to remove the collars from their products meaning all of their existing clients benefited from the rate cut.

This was great news for existing tracker rate mortgage holders but how does this affect clients who are looking to take up new deals either by way of remortgaging or new purchases? During the first quarter of 2007 (the peak of the lending market) it was not unusual to see tracker deals for new clients of around 0.51% under the Bank of England base rate for 2 years. With the base rate at 5.5%, this offered clients very low mortgage payments with a rate 4.99% and lending up to 90% Loan to Value
 
2 years on (and the base rate at 2.00%) the current pricing on a tracker mortgage is around 2.09% over base (pay rate 4.09%) and restricted up to 75% of a property value. Tracker mortgages are usually paid for using funds purchased using the London Interbank Offered Rate (LIBOR) and whilst we have seen LIBOR reduce to 3.17%, the lenders are not passing on the full cut and charge almost 1% above this.

For the last 12-18 months we have been recommending tracker rates to clients. Recent events have caused us to change our stance and we now recommend 3-5 year fixed rates to our clients to ride out the downturn in the market. Early 2009 should see the launch of some fixed rate products priced between 3.50% and 3.75% and these will represent excellent value based on previous experience.

The signs are good that the banks are starting to lend to each other again and this will benefit mortgage holders in the medium to longer term. Tracker rates will remain a gamble to the banks so expect competition to be rife in the fixed term arena and talk to your broker about locking in whilst the markets are at the bottom. You heard it here first!


To discuss this or any other mortgage issues please contact Mark Wadmore on 01454 205129 or email wadmorem@chartwell-funding.co.uk