Tracker Mortgages and Why They Work

In this article, David Lawrenson of LettingFocus.com, explains why he has always been a fan of tracker mortgages.

Tracker Mortgages and Why They Work

The facts are….

1) I hate standard variable rates (SVRs) and

2) I do not trust mortgage lenders to reduce mortgage rates when the Bank of England base rates fall.

The mortgage companies have a long and nasty history of delaying cuts to mortgage rates when central bank rates fall, but of very quickly putting their mortgage rates up immediately the base rate rises. This is all done so they can maximise their profits, of course.

If you are on a standard variable rate type of mortgage, the lender is free to charge whatever interest rate they like. So, if you’ve got sense, you’ll try to avoid being on a standard variable rate for too long.

Ever since I started investing in property, (and for my own home too), I have always tried to seek out mortgage rates that tracked the Bank of England base rate – mainly because that gave more certainty that I was not going to get ripped off by the mortgage lender.

In the past, before the great credit crunch and crash of 2008-9, lifetime tracker rates were available from most lenders, but they are very thin on the ground now.

With the lifetime tracker mortgage your loan was set for life at a set margin above the Bank of England base rate. In hindsight, these turned out to be bad deals for many mortgage companies but great deals for borrowers.

Indeed, so bad did these deals turn out to be for many lenders, that some decided to renege on the deals, shamefully citing usually irrelevant small print in mortgage documents. So, we were delighted to support Mark Alexander and Property 118 in their ultimately successful fight against West Bromwich Building Society. The win should deter other lenders from following suit (and legal action against other lenders, such as Skipton BS and Bank of Ireland, who also tried the same dirty opt out, is expected soon). For more see:  https://www.lettingfocus.com/blogs/2016/06/west-bromwich-building-society-lose-tracker-mortgage-case/

But without doubt, the lifetime tracker mortgages we took out years ago really helped us develop a successful property business. All my buy to let mortgages are still on lifetime trackers of less than 1.75% over central bank base rate today – and it’s a massive factor in how I grew my property business to the success it is today. Some are even at under 1% over base!

With the demise, (for now), of lifetime trackers, my advice for today is to avoid standard variable rates as much as possible and keep a very close eye on what other mortgage deals are available. If you get a base rate tracker linked deal, it’s usually best to get one which tracks base rate for as long as possible – and the same goes for fixes: i.e. longer deals are better.

The longer the deal, the longer you avoid having to pay another round of mortgage “application fees” and the longer you get to stay off the dreaded SVR – which will be the “go to” rate once any tracker of fixed rate deal you’ve got comes to an end.

And if you end up on an SVR, get out and re-mortgage as fast as you can.

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We advise a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors and insurers. We help them develop and improve their services and products for private landlords. David Lawrenson, founder of LettingFocus, also writes for property portals, speaks at property events and is regularly quoted by the media.

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