Mortgages in the UK

The current state of the economy has had a huge impact on finances for many. Families are in strife; workers are facing redundancies, cuts in hours and even cuts in wages. Many house owners are trying to 'tighten their belts' as much as possible, making savings where they can on their outgoings, denying themselves luxuries and cutting back on non-essential expenditure where they can. As a mortgage consumes a large chunk of a monthly income people are looking for the best deals from banks and mortgage brokers. A small percentage on a big figure can result in worthwhile savings. Some people feel that a tracker mortgage may be a solution to their problems - at least in a small, immediate way.

A tracker mortgage is a loan secured against a property where the interest that is charged is guaranteed to remain the same through following or "tracking" the Bank of England base rate at a set margin agreed above the current base rate and will not revert to the SVR [Standard Variable Rate] at any point during the life of the loan. They continually track the base rate until you have either paid off your mortgage or switched your mortgage provider or product.

Usually they work out cheaper than a capped, flexible, or fixed-rate mortgage - and though the cost of a tracker mortgage will fall to match a fall in interest rates, it will also rise to match an increase in interest rates. Tracker mortgages that have discounts and stepped discounts built into them are also available.

Latest figures show that the number of tracker mortgages available has fallen 81% in the last year from 1,937 to 366 and one-year tracker mortgages have been the greatest victims of the fall - astonishingly down to two from 522. Two and three year deals have fallen by around 73%, a reflection of the meltdown in the mortgage market in the current economic climate. It is understandable that customers wish to strike the best deal and the move of borrowers to fixed rate deals over recent months since bank rates slashed makes sense and has had an impact on tracker mortgage availability and attractiveness; choice is now limited. The new lower Bank of England rates means that margins on tracker mortgages over the base rate rise from 0.9 per cent a year ago to 2.5 per cent now.

However, there will probably be a drop in the level of fixed rate mortgages being sold as rates increase and as there has been little change in tracker rates, their appeal will increase unless of course interest rates start increasing rapidly.

Advantages of the tracker mortgage are low or no ERCs [Early Repayment Charges] and a good rate and fee arrangement with the possibility of an offset facility also. The ERC is probably the most appealing aspect of the tracker mortgage as it allows for clients to avail of switching to a fixed mortgage when it suits them better, providing they are not 'locked in' or includes a 'droplock' clause.