Advisers should be recommending transparent products such as tracker mortgages, according to Eddie Smith, director of business at specialist lender Verso. He believes they offer more transparency in contrast to the dual variable rates offered by some lenders.
Smith said: ‘The practice of charging new customers a lower variable rate than those on capped rates, or coming off fixes was endemic among the mainstream lenders and, despite the Ombudsman ruling against the practice, many of them continue to do so.
‘There are plenty of totally transparent products on the market, such as base rate trackers and rates tied to Libor, so I would recommend advisers ensure they include such products within the range of choices they offer clients.’
However, Ray Boulger, senior technical manager at Charcol, said despite tracker products appearing to offer more value, they should always be compared alongside other products such as discounted rates.
‘Tracker or discounted mortgages are better value than fixed rates at the moment. People always need to compare a discount with a tracker, the longer the term, the more value there is in a tracker. If you find a tracker which has the same rate as a discounted product then go for the tracker. However, if the tracker is for the same period as the discount, then go for the discount.’
A fall in interest rate changes would also make trackers more appealing, something Boulger believes could happen.
He said: ‘In five years, if the bank base rate was 2%, which could happen ‘ as who would have thought interest rates would be as low as they are now ‘ then the margin between bank base rates and standard variable rates would increase. This means the value of a tracker would be very strong.’