Best value mortgages: fixed-rate or trackers?

Thursday, 17 January 2008 12:00

Fixed-rate deals are becoming more competitive as increasing numbers of lenders lower their rates, but borrowers should opt for trackers.

That is the verdict of mortgage broker John Charcol, which believes tracker mortgages will prove better value as interest rates descend this year to the predicted five per cent level.

It revealed multiple lenders, including Woolwich, Lloyds, Intelligent Finance and Cheltenham & Gloucester, had cut fixed-rates by 0.15 per cent. But, at the same time, had increased tracker rates by the same amount.

The move came as two-year swap rates - the scale on which lenders base their fixed-rate prices - fell below five per cent in anticipation of another Bank of England base rate cut.

However, Katie Tucker, technical manager for John Charcol, said most people will find better value in trackers, particularly if bank rates fall below five per cent.

She added: "Discounts could also prove as good value if lenders respond to Alistair Darling's call to pass on the full discount of any bank rate cut."

Ms Tucker advised anyone considering a fixed-rate deal that Leeds Building Society is currently the "market leader" in most categories.

She issued a note of warning, however. "Allow time to apply - lenders with good rates will be very busy, very soon and their queues to issue mortgage offers creep [up] quickly," she said.

Borrowers keen on trackers were urged to seek advice from a broker as many deals offering low rates had higher fees.

Ms Tucker said: "Lloyds TSB has a tracker at 0.62 per cent under bank rate for two years giving a very low pay rate of 4.88 per cent for a 2.5 per cent fee, but with free valuation, free legals and no exit fee.

"Alternatively, Nationwide has a 0.02 per cent tracker over base rate for two years, giving a pay rate of 5.48 per cent for a flat fee of £1,499.

"All fees considered, the break point between the two is about £180,000, so if your loan is more than this, the Nationwide one is better value."

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