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January 29, 2009    

Trackers become “handle with care” loans as margins rise

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by Gill Montia
Trackers become

Moneysupermarket.com is warning homeowners that margins on tracker mortgages are rising.

With the Bank of England base rate at an all-time low, tracker deals have become increasingly popular.

However, lenders have been busy upping their margins on trackers; according to the price comparison website, margins have more than tripled in the past three months.

Research shows that in October of last year, when the base rate stood at 5%, the average margin on a new tracker mortgage stood at 0.76%, whereas today’s margin is typically 2.36% above base rate.

Even so, with the base rate at 1.5% lenders can still offer an attractive deal at 3.86%.

While further cuts in the base rate are expected this year, it will inevitably rise at some point in the future and moneysupermarket’s head of mortgages, Louise Cuming, suggests that trackers should be seen as “handle with care” mortgages.

She explains that each base rate reduction is potentially storing up problems and that borrowers thinking of taking out a tracker loan need to ensure they can afford higher repayments if rates rise in the future.

From this point of view, it may be worth considering today’s fixed-rate deals which will be sporting slightly higher rates than trackers but provide longer-term security.

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