Get back on tracker

By JAMES CONEY FOR THE DAILY MAIL
Updated: 05:39 EST, 28 July 2005

HOMEOWNERS should start to turn their attention to tracker mortgages which follow the Bank of England's base rate.

With most economists now believing that there will be a fall in the base rate - which affects the interest charged by banks and building societies for mortgages - now could be a good time to take out a tracker mortgage.

A tracker mortgage follows the Bank of England base rate, which is currently 4.75%, with a pre-determined margin.

If the base rate falls, then the interest rate on your mortgage would fall and therefore decrease your monthly repayments.

However, if the base rate increases then your mortgage repayments will also rise, so you need to ensure that you can afford any possible higher payment.

Most economists believe that the base rate will fall by 0.25% to 4.5% when the Bank of England meets next month, and will stay around this level. As always, it pays to look beyond the rate that a bank or building society is offering and make sure you add up all the costs.

With two-year trackers, assuming a £100,000 mortgage repaid over 25 years, Nationwide's base rate minus 0.01% is not the cheapest headline rate, but because its fees are less, it works out at the best value.

Over the two years, the total cost is £14,243 with monthly repayments of £570.

Saffron Walden Herts & Essex BS has a tracker of base rate minus 0.05pc, with a total cost of £14,337 and monthly repayments of £574.

Lambeth BS has a rate that follows base rate minus 0.2%, and gives a total cost of £14,602 and monthly repayments of £565.

Base rate minus 0.21% is available from Portman BS, and base rate minus 0.16% from Abbey and Alliance & Leicester, but the total cost is more because valuation fees, legal fees and exit fees are all more expensive.

Lifetime trackers are also available and those banks and building societies that do not make you pay a fee if you want to remortgage at any time are good deals.

Clydesdale Bank has a tracker that is base rate plus 0.25%. This gives monthly repayments of £585 and a total cost over the life of the mortgage of £175,951, if base rate stayed unchanged.

The next best deal comes from Saffron Walden BS, which has a rate of base rate plus 0.2%. Repayments would be £588 and the total cost £177,117, assuming the base rate remains unchanged.