Trackers are misunderstood

More than half of all home owners do not understand how a tracker mortgage works and could be missing out on the benefits, says Alliance & Leicester.

Research carried out by the lender shows over 8.4 million home owners do not know how a tracker mortgage would affect their monthly repayments. This comes as the Financial Services Authority is focussing on firms treating customers fairly, and making information available to them via its Mortgages Laid Bare campaign.

Only 34% of home owners know a tracker mortgage’s interest rate is linked to the Bank of England base rate. Some 17% think it is linked to the FTSE 100 index and 4% think the interest rate is fixed with a tracker mortgage.

Robin Gordon-Walker, spokesman for the FSA, says: “The two main things mortgage regulation requires are suitable advice and that the information in the Key Facts Illustration explains what it all means. There is general uncertainty among consumers of how things work in the mortgage industry.

“With the Mortgages Laid Bare campaign we are working together with firms to help consumers. Everyone will benefit from a greater understanding of products among con- sumers. Misunderstanding can be a problem. The broker might explain and the customer says they understand when they have really misunderstood.”

Stephen Leonard, director of mortgages at A&L, says: “It’s worrying to think such a large proportion of home owners are unaware of what a tracker mortgage is and how it could save them money on their monthly mortgage payments.

“There are certain advantages to choosing a tracker mortgage, especially given current low interest rates. But home owners should ensure they fully understand what type of mortgage they have. They can then be financially prepared should their monthly payments rise.”