Mortgage case studies: 'I'm now relieved we opted for a tracker mortgage'

[Legal Beagles]

Londoner Rory Brogan and his partner, Isabel, recently took out a base rate tracker mortgage with Barclays. It charges interest at base rate plus 0.19%, which means that yesterday their mortgage fell from 4.69% to 3.19%. He said: "It is excellent news on the mortgage front and I'm relieved we opted for a tracker mortgage for two years. We paid a bit more to begin with, but now we are reaping the benefits and our mortgage should come down by around £200 if you include the recent cut. This more than compensates for the drop in the interest rate on my savings, but I'm going to have to think about how to invest them more wisely."
Teacher Andrew Tiffney, 32, and his partner, Hilary, were one of the last borrowers to grab a cheap tracker rate before they were withdrawn. A month ago they came to the end of a 4.99% fixed rate on their £120,000 mortgage, then switched to Nationwide's tracker at base rate plus 0.64%. Within days, the pay rate had dropped because of the 0.5% base rate cut in October. Yesterday they said their costs fell again to 3.64%. It means that in just five weeks their monthly mortgage bill has fallen from £751 to £613. "We are hoping to keep our monthly payments at the old level and pay off the mortgage more quickly instead," said Tiffney.
Ray Boulger of John Charcol is probably Britain's best-known mortgage expert and practises what he preaches. He recently took a lifetime tracker from Woolwich which guarantees that he'll never have to pay more than base rate plus 0.19% on his £152,000 loan. That means his pay rate is just 3.19%. He put his son on to a Halifax base rate tracker. But he warns that new trackers coming out next week are likely to be priced at base rate plus 2% - equivalent to a pay rate of 5%.
Tim, an engineer who lives in London with his partner and son, took out a self-certified mortgage for £380,000 with Alliance & Leicester last April at base rate minus 0.1%. The monthly repayments were £1,800 when rates were 5.75% but after yesterday's surprise decision he will only be paying £940 per month - a saving on a year ago of more than £900. "It's a massive windfall," he said. "We're both working so we'll be able to save this money now." Though he comes off the rate in April and it goes up to base rate plus 2%, he'll still only be paying £1,600 a month. "I doubt I'd get that sort of self-certified mortgage in the current climate," he said. "Alliance & Leicester sold that mortgage on to Southern & Pacific Mortgage Ltd. I think that was connected in some way to Lehman Brothers but not the bit that went under."

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[Legal Beagles]

End of the tracker as lenders rush to pull deals


Mortgage lenders were last night hurriedly withdrawing their most attractive tracker rates in the wake of the Bank of England's surprise 1.5% rate cut as the industry prepared for a complete redrawing of its products.
Tracker deals available to new borrowers were scarce as banks and building societies pulled their ranges yesterday in response to what they described as an unprecedented announcement. Some, such as Lloyds TSB and its Cheltenham & Gloucester mortgage arm, and Alliance & Leicester, said they would not be launching replacements until next week. The Woolwich launched a range of new trackers yesterday morning but by just after lunchtime they had all been withdrawn. Northern Rock had already withdrawn its products on Wednesday night.
David Hollingworth at mortgage broker London & Country said that even before yesterday's rate cut, the margin over the Bank's base rate on new tracker deals had almost tripled in the space of two months. With deals coming and going at bewildering speed, "this is not a market for umming and ah-ing," he added.
The developments leave new housebuyers, who need to be encouraged back into the market if it is to recover, with little gain from yesterday's rate cut.
In contrast, the big gainers are those 4m-plus households that already have larger "tracker" mortgages. They will find themselves with an extra £200 or more each month, providing them with a cash injection in the run-up to Christmas.
A borrower with a £140,000 interest-only tracker mortgage will see their monthly payments fall by £175 a month as a result of yesterday's announcement. Someone on an equivalent repayment tracker will save about £120.
But some tracker customers will not benefit from any future base-rate changes, despite the fact that these deals are supposed to rise and fall in line with the official cost of borrowing.
This is because some lenders have clauses in their tracker contracts that mean the rate will not fall below a certain threshold. A number have a floor of 3%.
There was mounting concern last night that banks and building societies may defy calls to pass on the full reduction to customers. Also, half of all borrowers have fixed-rate deals, and will see no benefit.
Last night, Abbey and Lloyds TSB promised they would pass on the cut in full to their standard-rate borrowers, but concerns remained that some lenders will cut by only a small amount as they attempt to protect savings rates.
The organisation representing building societies warned yesterday that its members would not necessarily be reducing mortgage rates in the coming days, which could put them on a collision course with the government. One big problem is that Libor - the rate at which banks lend to each other - remains stubbornly high.
Most banks and building societies said they were reviewing the situation. Lloyds TSB and its Cheltenham & Gloucester arm were quick to confirm that customers on deals linked to its standard variable rate would get the full reduction. That means their borrowing costs will fall from 6.5% to 5% on December 1. Later, Abbey confirmed it would also be passing on the full rate cut to all existing customers on variable rate mortgages, with its standard variable rate falling from 6.94% to 5.44%.
Meanwhile, Britain's savers were last night bracing themselves for sharp cuts in the interest they receive on their cash.
In recent months, savers have been enjoying some of the best returns for years as banks, desperate to boost deposits as a result of the credit crunch, have been offering attractive rates - in many cases more than 6%. Last night those days looked to be over.
Within hours of the monetary policy committee's move, savers rushed to put their money into high-paying fixed-rate bonds in the expectation that such deals would not be around long.
Callers were jamming the switchboard at the Anglo Irish Bank in a bid to lock their money away, lured by returns of 7%. "The bonds are still available, but I've no idea for how long. It's been crazy all afternoon," said a woman at Anglo Irish's call centre.

• Mortgages
• Interest rates
• Savings
• Bank of England
• Economics
• Credit crunch

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