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03 Monday Dec 2012

Base rate: the only reliable benchmark Posted by:

Base-rate trackers are proving to be the only variable-rate mortgage worth having. The Libor fixing scandal and ING Direct’s decision to hike its standard variable rate (SVR) are very different events but both highlight that base rate is the only reliable measure for borrowers opting for a variable-rate mortgage.

Anything else – that can be manipulated by lenders – is simply too risky. Borrowers need transparency more than ever and while base rate can go up and down, at least mortgages that track it will do so in line with the official rate, without lenders meddling.

ING Direct announced today that it will raise its SVR from 3.5 per cent to 3.99 per cent from 1st August. This comes as no real surprise as ING’s SVR is cheaper than many other lenders but it means that borrowers should look at their situation and decide whether it is time to remortgage. Of course, not all borrowers will be able to, as their circumstances may have changed since they first took out their mortgage deal or they no longer meet tighter criteria from lenders. They may also not have enough equity in their home, with prices falling in parts of the country, and lenders reducing the maximum loan-to-value they are prepared to offer.

One of my clients, Mark Harris of broker SPF Private Clients (www.spf.co.uk), advises that borrowers should choose a mortgage which is fully transparent, which means one that tracks base rate, or a fixed rate if they need certainty. ‘This ensures borrowers know exactly where they stand,’ he says. In these uncertain times, who wouldn’t want some of that?