Remortgaging: Fix or tracker?

Remortgaging fell 63 per cent in May compared to the previous year, according to the latest figures from the Council of Mortgage Lending (CML), as the combination of shrinking equity and increasingly attractive standard variable rates (SVRs) persuaded many that doing nothing was the best option.

With SVRs for existing customers at several bank and building societies tied to the historically low base rate, the low rate of remortgaging shows many customers have been content to put off tying themselves into a new deal.

But while the base rate may remain stable into next year, mortgage deals will not stand still. Sarah Routledge considers the options for borrowers who are looking to lock in again.

Tracker

After the base rate fell spectacularly to its current 0.5 per cent, trackers gained a new popularity with some fortunate borrowers paying just pennies for their loan. But this led to a speedy withdrawal of new products.

According to Moneysupermarket.com, there were 522 one-year tracker products available on July 1st 2008 – by the 20th July 2009, there were just two available, a fall of 99.6 per cent.

Over the same period the number of two and three-year tracker deals fell by 74 per cent and 73 per cent respectively.

Although this lack of choice is not ideal, don't discount tracker mortgages, Louise Cuming from Moneysupermarket.com says: "For consumers looking for a new mortgage, the near entire absence of tracker products shouldn't put you off looking around for them; the trackers that are still available are generally much cheaper than the equivalent fixed rate deals.

She adds: "The decision between a tracker and a fixed rate is always somewhat of a gamble, and whilst some people like the certainty a fixed rate mortgage affords, the savings on offer from tracker mortgages are hard to ignore.

"Almost everyone agrees that the base rate must eventually rise, but no one knows quite when this will happen, and if rates remain flat for another six months or so, those opting for tracker may save hundreds of pounds."

Ray Boulger, of mortgage adviser John Charcol, says the security offered by fixed rates means they will remain popular for most people.

"However, we are recommending trackers to more clients this month, with the focus on low or no early repayment charges (ERCs) as well as the obvious requirements of a good rate and fee combination and possibly an offset facility," he adds.

"The reason the size of the ERC is important, unless the mortgage offers a droplock option, is that many clients will want to consider switching to a fix when the time is right for them."

HSBC is offering a 75 per cent loan-to-value (LTV) tracker mortgage, which is currently at 2.95 per cent, with a £799 booking fee. There are no early redemption penalties, so once the rate moves up the borrower is free to renegotiate.

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British courts jail two loan sharks as recession bites cash-strapped

A MOTHER paid almost $180,000 after taking out a loan of just $1,000 to buy a computer, a court has been told.

British mum-of-four Debra Wilson, 40, suffered two strokes and a brain haemorrhage from the stress of her repayments.

Her neighbour, Robert Reynolds, was yesterday given a 51-week prison sentence, suspended for two years, for harassment with intent to commit violence over the loan.

Mrs Wilson, from Newcastle in England's north, went to Reynolds to buy a computer as a present for her children and ended up borrowing 500 pounds ($1000) from him.

Unable to pay off the loan, she was hit with repayments that skyrocketed to $4,000 per month, forcing her to re-mortgage her home.

Reynolds collected repayments over seven years, claiming the original loan came from violent loan sharks.

Eventually Mrs Wilson was in a home without gas for heating and barely able to afford food.

"Don't, please, get involved in this. It's really not worth the long stressful road that you will be on,'' she said outside court yesterday.

The case comes amid rising concerns that the recession will lead to an explosion of loan shark activity.

British authorities fear that as credit dries up, the cash-strapped will increasingly turn to backstreet money lenders who charge exorbitant interest.

In a separate case yesterday, a ruthless British loan shark who charged vulnerable clients up to 2,437 per cent interest was jailed for five years.

John Kiely, known as Johnny Boy, used a network of enforcers to collect debts from hundreds of residents in Manchester housing estates.

In a five-year reign of terror he earned 2.9 million pounds ($5.86 million) and lived a luxury lifestyle as fearful borrowers were forced into hiding.

Kiely handed out the money from a wad of 20 pound notes from his black Range Rover, and sent around his thugs when repayments did not come back on time.

He earned so much from his loans he was able to pay cash for a $1.7 million mock-Tudor seven-bedroom mansion.

Judge Smith told 36-year old Kiely: "It's clear to me you are a ruthless individual who has displayed a high degree of criminal sophistication.''

Junior consumer affairs minister Kevin Brennan said a crackdown on loan sharks had led to more than 100 prosecutions.

"Thugs like Kiely who prey on vulnerable people cause untold misery within communities," he said.


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