Trackers still worth considering

Speculation interest rates may have further to fall

By Tim Twiddy

Published:

I can’t remember a time when there has been such a constant stream of bad economic news from just about every corner of the globe.

Where does it end? Well, there are a few glimmers of cheer if you look for them.

First there is a quote from Baron Rothschild, a very successful investor, who said: “Buy when there is blood in the streets.”

Well that certainly describes the situation at the moment, so maybe now is a good time to invest in the markets to benefit from a recovery.

Second, interest rates are extraordinarily low, making mortgage borrowing very cheap.

Even though the Bank of England has only recently reduced the base rate down to 3% there is already talk of another base-rate cut in the not-too-distant future.

Anyone with a mortgage can be cheered by such low rates, even if they do not get an immediate benefit.

Lenders have started bringing out their revised tracker ranges and some of the rates on offer are amazingly low.

Evidently, if the expectation is for rates to go lower, then a tracker would not only provide a low rate to start with but the rate should also reduce as the base rate goes down.

Some of the lowest tracker rates available include:

A lifetime rate: if you want a low rate that should stay competitive for the whole term of your mortgage, then Lloyds TSB has a lifetime tracker with a starting rate of just 4.39%.

This rate is Bank of England base rate plus 1.39% and, if interest rates continue to reduce, then the rate would fall further. The arrangement fee for the deal is 2.5% of the loan amount and the penalties are 3% until the end of January 2010 and 2% until the end of January 2011.

Another useful feature of the loan is that you can switch to a Lloyds TSB fixed rate at any time without penalty.

The maximum amount you can borrow is up to 75% of the value of the property and the deal is portable.

A two-year rate: Abbey has a two-year tracker with a starting rate of 4.99%, which is Bank of England base rate plus 1.99% followed by the standard variable rate, currently 6.94%.

The arrangement fee is a fixed £995 and the penalties last for the same term as the tracker rate and are 2% plus £225.

The maximum amount you can borrow is 75% of the value of the property and the deal is portable.

A five-year rate: Halifax has a five-year tracker rate with a starting rate of 4.99%. It has an arrangement fee of £999 and a mortgage account fee of £245 payable on completion.

The penalties last for the same time as the tracker rate and are 5% until the end of January 2010, 4% until the end of January 2011 and 3% until the end of January 2014. The maximum amount you can borrow is 60% of the value of the property.

Tim Twiddy is managing director of Atlantic Investors. For more information, call 0800 163 659