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Comment: Help borrowers to navigate the tracker fine print

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Many customers wrongly assume all trackers are linked to the base rate, so they need help in interpreting the T&Cs

In the weeks since the Bank of England’s decision to cut interest rates from 0.5 per cent to 0.25 per cent, brokers have seen an increase in clients enquiring whether to switch from a fixed-rate mortgage to a tracker.

In today’s saturated market, most customers focus on the headline rate and do not always look at the full terms and conditions when choosing a mortgage product. This can be dangerous, especially when moving to a tracker.

The main detail that brokers should make clients aware of is the term of the deal. Is it a lifetime tracker or does the rate apply for an initial period only? If the latter is the case, what is the revert rate?

Many customers assume all trackers are linked to the Bank base rate, which is not the case. The fine print can be tricky to navigate, with some lenders also including a collar or floor in the product, meaning there is a minimum rate the borrower will have to pay regardless of any reduction in the underlying rate followed by the tracker.

Despite Bank of England governor Mark Carney’s claim that lenders had no excuse not to pass on the rate cut to consumers, lenders’ margins have come under increasing pressure recently and some may choose to increase the rate they charge on their products. The fact remains that a tracker is a variable-rate mortgage, which means it can go up as well as down.

The complexity of the market and the plethora of choices available make the advice of a professional broker invaluable.

Advisers must work closely with customers who are considering remortgage options to ensure they get the best product for their needs.

Toni Smith is sales operations director at First Complete

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