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Robert McCoy: Do not discount a discount product

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There are some competitive discounted deals available, which advisers should compare alongside tracker products

At the end of 2008, when the Bank of England base rate was 2 per cent, lenders were often accused of not passing on the reductions to variable mortgage rates. This encouraged both consumers and advisers to look at base-rate tracker mortgage products as an alternative to the previously recommended discounted products. As we know, by March 2009 the base rate had come down to its historic low of 0.5 per cent and this switch seemed a wise decision.

Fast-forward to 2016 and there is continued talk of a base-rate rise. When it happens, these popular tracker products will have their underlying rate increased, so holders of them will feel the effect. New customers may find less attractive tracker deals and may even think about alternatives such as fixed rates. However, market anticipation about a rate rise means competitive fixed or tracker-rate products will begin to disappear as that rise becomes priced into mortgage rates. Now may already be too late to get a great deal. So what is the answer?

There are some competitive discounted deals available, which advisers should compare alongside tracker products on the market as they offer similar headline pay rates, competitive fees and incentives. Some are even cheaper than fixed rates.

According to data from Moneyfacts, many lenders, especially building societies, have not moved their variable rate since the start of 2009, despite continued base-rate reductions until it hit 0.5 per cent. Who is to say they will increase this if base rate does move up?

Do not discount a discount product. They could prove a good alternative in the months ahead.

Robert McCoy is senior product manager at Sesame Bankhall Group

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