Charcol urges tracker gamble

Friday, 15 August 2008 12:00 AM

Mortgage broker John Charcol has urged potential homebuyers to consider tracker mortgages amid the current turbulent financial climate.

While the cost of fixed-rate borrowing has begun to fall - in the wake of a reduction in Swap rates - Charcol argues expected cuts in the Bank of England base rate could see buyers better off in the near future.

"To say the mortgage market has been an enigma of late would be an understatement of epic proportions," explained Drew Wotherspoon of Charcol.co.uk.

"With news, most of it negative, emanating on a daily basis, borrowers could be forgiven for not knowing whether to fix, track, cap or offset.

"However, with news from the Bank of England on inflation revealing a marked increase, and indeed an expectation of an equally marked decrease to come, it now seems highly probable that Bank Rate will fall sharply in 2009," she added.

Earlier this week, the Bank predicted inflation would rise over five per cent before the end of the year, backed by increasing prices for fuel and food.

However, with oil prices falling and commodity markets also heading south, Bank of England predictions see the rate of inflation falling back toward the target of two per cent by the middle of next year.

This could untie the Bank's hands, allowing it to target a flagging economy, and property market, through a reduction in interest rates.

"Trackers are currently priced at around 0.3% better than their fixed rate counterparts, so borrowers will immediately see less coming from their wage packet if they arranged a new tracker now over a fixed rate," continued Ms Wotherspoon.

"Yet with at least one per cent predicted to disappear from Bank Rate, this gap will widen significantly over the coming months."

The Bank's monetary policy committee (MPC) has maintained rates at five per cent for the past four consecutive months.

Chris O'Toole

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