Exclusive Connections has introduced a base rate tracker mortgage with a rate that is 0.70 per cent above the Bank of England base rate for the first five years.
With a current payable rate of 5.95 per cent, after five years the tracker rate increases to 1.75 per cent above the base rate for the remaining term.
Loans of up to 95 per cent of valuation are available and a cashback of £500 is offered. Borrowers who redeem during the first five years must pay an early redemption penalty of 5 per cent of the amount repaid in years one and two, 4 per cent in years three and four and 3 per cent in year five.
Borrowers with this mortgage can work out exactly what their mortgage payments will be if interest rates change, unlike mortgages linked to the lenders' standard variable rates. However, tracker rates are a double edged sword. since mortgage repayments will increase immediately in line with the base rate. They will also fall if the base rate is cut but this looks unlikely at the moment.
According to Moneyfacts on July 31, 2001, the closest comparison to Exclusive Connections is from Private Label. This mortgage stays at 0.74 per cent above the base rate for the first five years, giving a current payable rate of 5.99 per cent. After this period, it tracks at 1 per cent above the base rate for the rest of the term.
Borrowers who redeem this mortgage must pay 2 per cent of the amount repaid in years one and five, 3 per cent in years two and four and 4 per cent in year three. Private Label believes that borrowers are more likely to redeem in the third year, and this accounts for the increased penalty.
Exclusive Connections is more competitive during the first five years, but not as competitive as Private Label for the rest of the mortgage term. Exclusive Connections also has a higher penalty than Private Label in years one, two and four, but the reverse is true in year five.