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Tracker mortgages becoming popular but not necessarily the best option

Tracker mortgages, which are linked to interest rates are becoming increasingly popular as the base rates fall to record lows but is warning homeowners that margins on tracker mortgages are rising.

Lenders have been busy upping their margins on trackers which have more than tripled in the past three months.

Research shows that in October of last year, when the base rate stood at 5%, the average margin on a new tracker mortgage stood at 0.76%, whereas today's margin is typically 2.36% above base rate.

Even so, with the base rate at 1.5% lenders can still offer an attractive deal at 3.86%.

But with further cuts in the base rate expected, it will inevitably rise at some point in the future.

Moneysupermarket's head of mortgages, Louise Cuming, suggests that trackers should be seen as 'handle with care' mortgages.

She said that each base rate reduction is potentially storing up problems and that borrowers thinking of taking out a tracker loan need to ensure they can afford higher repayments if rates rise in the future.

From this point of view, it may be worth considering fixed-rate deals which will be sporting slightly higher rates than trackers but provide longer-term security, she added.