by Mark Johnston
It seems that some economists are now forecasting that interest rates will remain frozen at the historically low level of 0.5% until as late as 2016.
Mortgage rates hit a particularly ‘sweet spot’ in late 2011 with some very competitive deals on offer and this carried on in to early 2012. These deals however are now practically all gone, with most deals repriced substantially upwards.
Many experts believe that mortgage rates have been pushed up by the lack of competition in the market. Therefore until competition returns to the mortgage market lenders will hold all the cards and rates will be twitchy.
David Hollingworth, from mortgage brokers London and Country, said “we are seeing rates go up, not down”. Therefore it is bad news for borrowers hunting for a new mortgage deal.
All this said, industry experts still state that mortgage rates on a whole are still below the long term average.
Mortgage rates are part of a complex financial web that draws on official lending costs such as the Bank of England base rate and money market funding costs. Meanwhile the traditional influence on tracker rates has been the London Interbank Offered Rate (LIBOR), the cost of floating rate funding on the money market.
Some of the best tracker mortgages on the market at the moment are:
First Direct offer a lifetime tracker with a rate of 3.29% for a 30% deposit and a fee of £499.
HSBC offers a lifetime tracker deal for those with a 35% deposit at a rate of 2.99%, pegged at 2.49% above base for the entire mortgage term. However if fee free the rate rises to 3.29%.
For those with a 25% deposit, the Co-operative offers a lifetime tracker with a rate of 3.19% which is fee free. This deal can only be accessed by existing current account customers or go through its switching service to become one.
Borrowers who can only raise a 15% deposit the HSBC offers a lifetime tracker deal with a rate of 3.99%.
Finally for borrowers with a 10% deposit, HSBC has a lifetime tracker at 4.79% with a £999 fee or 4.99% with a £599 fee.
All of these deals come with no early repayment charges in case a borrower needs to move if and when rates do rise sharply.
The main thing to remember is the bigger the deposit a borrower can muster, the lower the rate they will pay.
An interesting variation to the simple tracker mortgage is the tracker to fix option. The Yorkshire building society has a 2 year tracker which converts to a 3 year fixed deal. It has a starting rate of 2.99% and then switching to 3.99%, with a fee of £995. It does require a 25% deposit though.
In conclusion, most people understand that the low rate environment that we are currently in is quite unusual. Therefore everyone no matter what mortgage deal they have should be planning ahead to ensure that they can adjust their spending to meet their commitments if and when rates rise.
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