In the past two years, the number of capped tracker mortgages has increased from one to 39, and many mortgage lending companies are starting to include these mortgages in their portfolio.
People looking for a contractor mortgage are now faced with a multitude of products to choose from. You can select from one of the many fixed rate deals, standard variable rates or hybrid home loans that combine the two.
Capped tracker mortgages follow the base rate set by the Bank of England for a fixed term, but the lender guarantees the maximum interest rate that will be charged on the mortgage.
First Direct has two three-year capped trackers on the market at the moment. Borrowers with a 25% deposit can get a tracker capped at 4.38% that follows the base rate + 2.58%, whilst those with a 35% deposit pay the base rate +2.18% and have a guarantee that their rate will not rise above 3.98%. There is an arrangement fee of £999 for both of these deals.
Woolwich, the mortgage arm of Barclays, is the only lender currently offering a five year capped tracker deal. It offers the base rate + 2.70% and comes with a cap of 5.99%, but is only available to people with at least 30% deposit and it attracts a fee of £999.
Now here’s the dilemma. If interest rates only rise by a couple of percent in the next three year, the guaranteed cap won’t have been necessary but you’ll have been paying a premium for the privilege of having it. And once the mortgage term comes to an end, you’ll have to find a new product in a much less competitive mortgage market. If only we knew what the Bank of England intended to do about interest rates…
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