Trackers with no early repayment charges are the order of the day

With bank rate predicted to drop in February and the current lack of many competitive fixed rates, many people’s product of choice is a tracker with no Early Redemption Penalties. Research from the UK’s leading independent mortgage broker, John Charcol, has revealed that its top 3 mortgage products sold in January 2008 so far are all Bank Rate trackers with no Early Repayment Charges (ERCs).

Katie Tucker, technical manager for John Charcol, comments: “Bank rate is widely expected to fall so trackers or discounts make sense for most borrowers, and one with no tie-in at all means you can remortgage away when you like: it seems that borrowers seem to be awaiting a new wave of sub 5 % fixed rates.

“2 year swap rates, which indicate banks’ predictions of Bank Rate in two years, and in turn set the price for fixed rates, dropped considerably following the last Bank Rate reduction, but lenders have not yet brought down their fixed rates accordingly; most are making up for the high cost of their lending in last quarter of last year due to the credit crunch. However, another Bank Rate drop should give lenders sufficient confidence that cost of their funds will remain low, allowing more of them to offer fixed rates under 5%. The few lenders that have released sub 5% two year fixes, such as Bristol & West and Leeds, ran out of money on them in less than a week. This merely emphasises how vital it is for borrowers to move fast when a good deal does come up.”

What products are available now?

Tucker continues: “This week, lenders including Abbey, Cheltenham and Gloucester, First Active, Halifax and Nationwide have put their tracker rates up or their fixed rates down, in expectation of another Bank Rate drop in February. First Direct has the lowest two year fix at 4.75% and a fee of £1,498 for the full offset account version, although this has a maximum loan of only £300,000. Yorkshire also has a good two year fix at 4.95% with a fee of £1,995 that has the added flexibility of overpayments, underpayments, payment holidays and borrow-back. National counties has opened a very low 5.19% five year fixed rate with a fee of £595, however with talk of rates falling further, it’s too early to chose a rate for a 5 year commitment for most borrowers.

“Tracker rates make most sense for most people. Very few are available with no ERCs so snap them up while you can. Lloyds TSB has a tracker at 0.18 above Bank Rate for two years giving a pay-rate of 5.68%, for a fee of £1,995 which comes with a free valuation and free legals on remortgages, and no ERCs. For borrowers who want a competitive rate without the hassle of remortgaging every few years, Nationwide has launched a remortgage tracker of 0.44 over Bank Rate for term, with no arrangement, valuation or legal fees.”