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Boulger tends towards trackers

Advisers should be recommending more trackers as fixed rates become too expensive, says John Charcol senior technical manager Ray Boulger.

Boulger says that over the last five weeks the cost of fixed rate mortgages have rocketed, with many lenders increasing their five-year fixes by around 1 per cent, despite swap rates peaking in the middle of June.

He says that while the spreads between five-year swaps and fixes have widened, trackers have remained static. As a result, he thinks advisers should be looking to offer more long-term trackers to ride out the costly fixed rates.

Boulger says: “Since the end of last week a few lenders, namely Woolwich, Lloyds TSB and Cheltenham & Gloucester, Halifax and Britannia have announced small reductions of 0.1 to 0.3 per cent in selected fixed rates, but in general lenders have at best left their fixed rates unchanged and some, including Northern Rock, have further increased their fixed rates, as a result of which many now look expensive.

“Thus the premium over the initial tracker rate one now has to pay to secure the interest rate protection provided by a fixed rate for five years or longer has risen to well over 2 per cent.”

He says that the US base rate of 0.25 per cent has been static, and could remain static for an extended period, so it is safe to assume our 0.5 per cent base rate may follow the US pattern.

“Many fixed rates are now beginning to look expensive and trackers generally look better value for borrowers who don’t need the security of a fixed rate. Too much of the anticipated rise in interest rates is now factored into fixed rates.”

Boulger has also refuted the Council of Mortgage Lenders’ defence of high rates yesterday. The CML argued that lenders’ strategies are affected by much more than swap rates in this current environment, but Boulger argues that swap rates remain an important benchmark.

He says: “Swap rates remain an important benchmark. It is, nevertheless, fair to point out that, contrary to the lack of it in the mortgage market, there is fierce competition for savings and this has been driving up rates for savings fixed rate bonds, which are still rising despite the recent fall in swap rates.”

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