If you subscribe to the view that chances of an interest rate rise are receding, then a base-rate tracker mortgage is a good bet
With figures this week showing Britain has plunged into its first double-dip recession since the mid-1970s, some economists believe an interest rate rise is receding ever further into the distance. If you subscribe to that view, then base rate tracker mortgages are looking like a better bet than ever.
The City sees no prospect of the Bank of England base rate being raised from its record low of 0.5% before the end of 2013 at the earliest.
Ray Boulger at mortgage broker John Charcol says: “My view is that the timeframe for the bank rate remaining at 0.5% is being extended all the time.”
He thinks we are looking at base rate remaining at its current level “beyond 2014”.
If you are looking for a new mortgage, it arguably comes down to a choice between a base rate tracker or a five-year fixed rate. If the economists are right, there’s probably not much point going for a two-year fix, because you will be coming to the end of your deal just as rates may start to rise.
The cheapest lifetime trackers are offered by Bank of China’s UK arm and HSBC. With the former, you pay bank base rate plus 2.3% (ie, 2.8% now), and with the latter it is base rate plus 2.29% (2.79% now). The Bank of China deal is available up to 80% loan-to-value (LTV) for properties worth up to £150,000, up to 75% LTV for homes worth £150,000 to £500,000, and up to 70% LTV above that. There is an arrangement fee of typically £1,295. HSBC will only lend up to 60% of the value; however, there is no fee.
You will pay a premium of roughly 0.75% for the protection offered by a five-year fix as opposed to a lifetime tracker, but a lot of people will feel that is a price worth paying for five years’ security, says Boulger. If you can’t afford to get the interest-rate guessing game wrong and/or you don’t want to live with the fear of rates rising, fixing may be the way to go.
The cheapest five-year fixed rate at the time of writing was 3.59%. This is offered by both the Post Office and Chelsea building society. However, while the Post Office will lend up to 75% of the property’s value, the Chelsea will only go up to 70%. Both deals carry a £1,495 arrangement fee.