Tracker mortgages

At the moment, I am seeing an increase in the amount of tracker mortgages being taken up. Getting a tracker without any penalties to come out of it gives you the flexibility to review your mortgage situation whenever you feel necessary, without the hefty risk of penalties. However, there is a risk that your mortgage will go up in cost in the short term. That said, I believe we will see a drop in rates in the future and people on trackers will be the first to benefit. If you offered me a tracker or a 10-year fixed rate at the moment, I would snap your hand off for the tracker. Although the stability of the fixed rate may give you comfort, a tracker is the lesser of two evils as flexibility is key at the moment. However, one thing to take into account is your budget: if you are already close to having no disposable income, then maybe the tracker is not the right option for you, as if interest rates continue to increase, you risk losing your property. So when it comes to making a decision, make sure you speak to a qualified professional. What is good for one, may not be good for another. Remember, you will always lose to the lender in this game, you just get to choose how you lose.

Tracker mortgages are incredibly attractive to borrowers at present, but beware of a wolf in sheep's clothing. Tracker rates start around 0.7% above the Bank of England base rate, whilst an equivalent fixed rate mortgage can be considerably higher. This means clients can make decent monthly savings in the short-term. However, tracker mortgage payments can change each month, either up, or down and therefore come with a certain degree of risk, whilst fixed rate mortgages offer payment security albeit at a higher cost. Effectively trackers are a gamble on whether mortgage rates might go in the future, something which none of us know. Generally, advice should be based on circumstances and not rate predictions. Tracker mortgages are best suited to clients who are able to accept significantly higher payments in the future if rates move against them, or require additional flexibility to repay capital at any point. If not, it's better the devil you know, and security of payment might be a sensible option given the current state of the economy.

Tracker mortgages could be a gold mine for those that have the appetite for the risks associated with them. Interest rates are on the rise. We are all aware that the current level of inflation needs to be curbed, and rate rises are the bank's only tool. However, in 12 months we expect inflation to be back near its target of 2% and the economy to be in the bin. At this point, the bank will feel pressure to reduce rates. Only yesterday, Nationwide released rates where a 10-year fixed will cost you less than a 2-year deal. This signifies what they think of the economy and where rates might be going.

The current uncertainty around rates would mean you must have tolerance for pain as with a tracker, and your monthly payments will be yoyoing month to month, which I feel the majority of people don't want as they want certainty to be able to budget.