Historically buying a property with a tracker mortgage has been a good deal for those who can manage with their mortgage payments going up and down in line with the lender’s SVR or bank base rate. On average these tended to be a good deal for both the borrower and lender over a period of time. But it seems this is no longer to be the case.
The Sunday Times published an article (30/08/09) where they investigated the margins made on tracker rates in today’s market, what they found made for very interesting reading. On average lenders are charging £414 more per month on tracker mortgages than in January 2008, in effect the lenders have increased their margins over 3 month Libor which relates more closely to the cost of obtaining funds.
So today’s average tracker mortgage is now 3.07% higher than the Libor rate of 0.69%. Lenders are now making almost record profits with tracker mortgages. It also appears that many lenders are steering property buyers towards tracker mortgages by making the arrange fees / costs considerably higher for fixed rate mortgages.
Some analysts are now reporting that the higher costs of tracker mortgages could have a negative impact on economic recovery as it is effectively reducing the disposable incomes available to those with mortgages (the majority of the working population).
But perhaps there is an even bigger problem looming on the horizon. Some tracker deals have lock-ins, in effect if you redeem the mortgage in the next 1, 2, or 3 years you will have to pay penalty fees. With base rates predicted to increase (see our previous article here ) it means that tracker mortgages, and in particular bank base rate tracker mortgages, could become very expensive in the next 2 years. To put some figures on this, when bank base rates get back to 4% then the average tracker mortgage could go to 7% or more.
