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Tracker mortgages still offer the best value Go compare with our comparison table

Tracker mortgages still offer the best value

09 July 2010 / by Rachael Stiles

So the base rate didn't change yesterday, for the sixteenth month in a row. Shocker. With the exception of a few rogue economists, the general consensus is that interest rates will stick at 0.5 per cent for the rest of the year, so it's almost surprising that the Bank of England even bothers to issue a press release about the outcome of the Monetary Policy Committee's monthly meeting for the time being.

If you foresaw interest rates languishing at these record low levels for a prolonged period of time, and chose a tracker mortgage accordingly – congratulations! You're in the money. By now, you have saved £100s in interest payments,

Mortgages that track the base rate continue to offer the best value over fixed rate mortgages, and even when the base rate does inevitably start to rise, it would have to increase by a considerable level for a fixed rate to offer a better deal.

The cheapest two year fixed rate mortgage deal is currently a 4.80 per cent deal from Yorkshire Building Society, compared to 2.45 per cent for a tracker mortgage from ING Direct.*

At 2.04 per cent above the base rate, the Bank of England would have to increase interest rates to around three per cent before this mortgage was charging a similar rate to the best deals offered by the fixed rate market. And, experts predict that when rates do start to rise, it will be a slow process, unlike when it plummeted from five per cent to 0.5 per cent in just six months.

Not everyone is in a position to take a chance on a tracker rate. If you've got a tight budget, without any room for a rise in your monthly outgoings, then a fixed rate mortgage offers the security you're looking for. Two year fixed rates are still bad value for money compared to tracker rates, but the gap has between trackers and longer term deals like 5 or 10 year fixes has narrowed.

While inflation remains above target and there is ongoing potential for further turmoil in the Eurozone, increasing the base rate would be premature, but this didn't stop one member of MPC from voting for a rise last month. It will be interesting to see whether any more members broke rank and said the same, when the minutes for this month's meeting are released.

* Based on 75% loan to value, according to data from

ProviderLTV**CCJsDefaultsBankruptcyIVAMissed Loan Payments* 
Up to 75%None in 12 Months - Maximum 5None in 12 MonthsDischarged 12 Months AgoSatisfactorily Conducted 12 Months AgoNone in 12 MonthsMore Info >

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Representative Example:

A repayment mortgage of £120,000 payable over 28 years and 1 month initially on a fixed rate for 2 years at 1.99% and then on the lender current variable rate of 3.69% (variable) for the remaining 26 years and 1 month would require 24 monthly payments of £465.20 and 312 monthly payments of £565.39 and one final payment of £565.19.

The total amount payable would be £189,357.67 made up of the loan amount plus interest (£68,161.67), booking fee (£999), completion fee (£30) and valuation fee (£197).

In this example the overall cost for comparison is 3.7% APRC representative.