Mortgage risk and exposure triples in past three months

Rather than being a cure-all, new trackers have become the ultimate 'handle with care' mortgage with bank margins now at a dangerous level for borrowers.

Back in October, with the Bank Of England rate at five per cent, the major lenders were offering new two-year trackers with an average margin of 0.76 per cent above the base rate. Now though, with the official rate at 1.5 per cent, new trackers are at an average of 2.36 per cent above the rate.

Louise Cuming, head of mortgages at moneysupermarket.com, said: "Those who took the plunge with a tracker in October will now be paying around 2.26 per cent interest - a stunning piece of fortune for them. But anyone seduced by today's seemingly low tracker rates of around 3.86 per cent needs to tread carefully.

"If the Bank Of England's historically low rate triggers a savings or currency crisis and it is forced to increase rates, then today's new tracker customers will be left sorely exposed.

"The risk for the new tracker borrowers of today is more than triple what it was in October."

It is not only worries over a deflating pound and the poor return on savings that throws the Bank Of England's low-rate strategy into question.

Louise Cuming added: "Rather than helping first-time buyers and those remortgaging, the Bank Of England's most recent decision to cut rates has put these two key groups in greater peril.

"Each Bank Of England cut is leading to a greater margin for the banks on trackers because they simply cannot afford to drop mortgage rates any lower.

"Any future upward correction of rates by the Bank Of England could leave today's new tracker customer hitting the panic button."

Louise Cuming's top tip: "Borrowers thinking of taking out a tracker mortgage now need to ensure they would be able to afford higher repayments if rates start heading back up.

"Those concerned by this prospect need to consider the virtue of getting a fixed mortgage - potentially at a slightly higher rate, but with longer-term security.

"Today's tracker deals might look like a cure-all now, but they will only be a panacea as long as the base rate stays low."