Brokers warn of tracker payment hikes

06/10/2009

Many tracker mortgage customers are to experience sharp increases in their monthly payments later this year, a broker has pointed out.

Figures from John Charcol reported in the Financial Times show that rates on some of the deals, designed to "track" the Bank of England base rate, will rise by four per cent or more as the introductory period comes to an end.

Trackers have been unusually cheap recently, due to the Bank of England's decision to cut its base rate to an all-time low of 0.5 per cent earlier this year.

The deals at risk of the sharpest changes are two-year trackers taken out in late 2007, before the worst effects of the credit crunch were felt.

Many of these customers have been paying almost no interest following the Bank of England cuts.

However, once the tracker period ends, John Charcol suggested that some could pay around £500 more a month as they revert to their lender's Standard Variable Rate.

Meanwhile, all tracker customers could experience an increase in payment obligations when the Bank of England increases the base rate in future.

"This is absolutely a 'payment shock'," Richard Morea at mortgage broker London and Country told the newspaper.

"EuroDebt has consistently warned homeowners of the risk that interest rate increases can wipe out any disposable income," director Kevin Still said.

"If this looks like a reality then you should be planning for this now. Unfortunately creditors don't have very long memories and any over payments you may have made whilst interest rates are low may count for nothing if you start missing or underpaying when interest rates increase.

"EuroDebt will always prioritise mortgage payments and other essential expenditure. It may be the case that reduced payments to unsecured creditors are the only way of achieving this if rates increase and you can't swap to an alternate product. Managed debt solutions like a Debt Management Plan or an IVA are on the increase for home owners where re-mortgaging is simply not viable."

Tags; Housing Debt and Bills, Young Family Finances,

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