Flexible clients will see tracker benefits

21 June 2010

To fix or not to fix is an old dilemma but in today’s climate where prudence is the name of the game the question should be addressed by those coming to the end of their mortgage deals.

In uncertain times many borrowers err on the side of caution when their deals come to an end and a growing number want to know their monthly repayments are set. But what price might these borrowers pay for their decision?

The differences are highlighted when you look at interest-only monthly payments on best buy rates for two and five-year fixed deals and compare them with similar payments on a best buy two-year tracker deal on a loan of £150,000 at 70% LTV.

The difference for the two-year product is nearly £100 at the time of writing in favour of the tracker option, and when tracker payments are compared with the five-year option the gap increases to £250.

The Bank of England base rate would have to rise by over 0.75% before the tracker product became more costly than the current best buy two-year fixed rate.

Obviously, borrowers need to take their own view on risk and it may be that lower fixed rates make a comeback.

But given the differences between tracker and fixed rate monthly payments it is likely that borrowers who are less risk-averse and can afford to be flexible will make the bigger savings.

On the other hand, those who can combine the two may come out on top - banking the amount saved with a tracker deal to cushion against a potential rise in rates.

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