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HOMEOWNERS with a fashionable type of mortgage face a tough year if interest rates start to creep back up.
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So-called tracker loans, where rates mirror movements in the Bank of England base rate, have been in vogue since borrowing costs began to fall in 2000. But experts say home owners are about to get a harsh reminder that what goes down can also go up.
David Hollingworth of mortgage broker London & Country based in Bath, Somerset, says: 'Tracker loans promise absolute security. For a fixed period, you know that the interest rate you pay will never deviate by more than a set amount from the Bank of England base rate.
'But they don't shield you from base rate rises and borrowers should realise that they will have to take the rough with the smooth.'
Fortunately, many trackers are so keenly priced that they should remain good value even if rates edge up by a quarter percentage point in the spring.
For example, Halifax last year launched a limited offer promising a 0.45 point reduction on the base rate for two years. Borrowers lucky enough to have taken that loan now pay just 3.55% interest.
Halifax has changed its rates several times since then and is less generous today. Its latest tracker deal is set at 0.6 of a point above the base rate for two years.
The most recent tracker best-buy chart from London & Country shows several lenders can beat this. Nationwide's latest tracker is set at 0.29 of a point above the base rate for two years, which means that today's borrowers pay 4.29% compared with the society's standard variable rate of 4.74%.
Yorkshire building society is more generous: borrowers pay a quarter-point below base rate for two years, giving a rate of 3.75% today. Yorkshire's standard variable rate is a far higher 5.75%.
Homebuyers wanting longer term trackers can pick a five-year deal from the Cheshire building society at half-a-point above base rate, while Woolwich has a deal at three-quarters of a point above base rate for the life of the loan.
Simon Tyler of London-based broker Chase de Vere Mortgage Management says: 'A good feature of many trackers is that they don't tie borrowers in with stiff redemption penalties during or after the term. This means that they can enjoy the benefits while trackers offer good value, then jump ship relatively painlessly if things change.'
Manchester doctor John Behardien is one borrower who believes that trackers will offer good value in most economic climates. He and wife Frances, 40, built their home 12 years ago and have held different types of mortgages over the years.
John 44, says: 'Some fixed rates we had were good for a while, but we did not like the feeling that we were then tied to the lender for ages afterwards. What we wanted was a simple mortgage that was guaranteed not to become uncompetitive. Trackers offer that.'
The couple who have two children, Emily, 10, and Charlotte, eight, turned to London & Country for help when they decided to remortgage last autumn. The broker found them a Halifax tracker at a 0.05 point reduction on the base rate until October 2003 - a great deal that is no longer available.
John says: 'The savings were dramatic and it cost little to arrange the remortgage. And even if interest rates rise a little in the near future, we will still be paying far less than any borrower who is on a bank or building society's standard mortgage rate.'
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