Out of the mortgage mire?

Not only are petrol prices starting to fall, but the cost of a mortgage looks to be heading south too.

Abbey have cut the rates on some of their fixed-rate deals, and Barclays slashed some of the rates offered by Woolwich, its mortgage unit, by 0.35 per cent earlier this week.

These cuts come on top of other reductions from the likes of Halifax, Lloyds TSB and Nationwide last week.

So why the turnaround? The main factor is a sharp fall in the rates banks charge to lend money to each other – the so-called LIBOR rate. The rates on mortgages are directly affected by it, and on Monday it fell to 5.92%, down from a peak of 6.5% in June.

Sadly, though we might not be totally out of the woods and borrowers still need to tread carefully when looking for a home loan.

MoneyExpert.com can give some advice for would be borrowers.

All that glitters

The mortgage market can be an innovative place with anything from AirMiles (see Lloyds TSB) to so-called ‘death-bed’ mortgages (passed from one generation to the next) luring in custom. But borrowers need to be careful no to be dazzled by a shiny new product.

NatWest yesterday launched a so-called fee-free tracker mortgage with a rate that reduces annually for its fee-free life. Cutting out the application fees is great news, particularly with other providers charging amounts up to £1,500, and a rate that drops year on year sounds perfect too, but you need to look at the details.

The average rate on tracker mortgages is currently 5.9% so a deal that effectively starts at 6.89% and finishes, after two cuts, on 5.99% no longer seems quite so attractive. Make sure you consider the full cost of the mortgage, and not just the benefits of any short-term incentives.

Check the small print

With many people inevitably coming to the end of a mortgage period it can be tempting to jump ship to a lower rate but you need to bear in mind the fees that you could incur. Average arrangement fees are currently approaching the £1,000 mark so you’ll need to weigh any reduction in the rate against those costs.

If, for example, you were to switch from a 6% mortgage to one at 5.8% but paid £1,500 in fees to do so, you’d only be saving yourself money after 4 years, by which time it might be time to switch again!

Get on track

Tracker mortgages have rather gone out of fashion in recent months with uncertainty over the economy driving people to fixed rate deals. The base rate, though, has come under control and at 5% now even looks like it may fall further in coming months.

With that in mind, tracker mortgages may well be worth another look.

Click here to compare mortgage deals.

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