· Charcol offers exclusive five year tracker with initial pay rate of 4.29%, based on lower Euro rates but with no currency risk
· The overall cost for comparison is 6.0% APR
The product has an initial pay rate of just 4.29%, which is some 0.5% better than the next best equivalent tracker product based on UK rates.
The Euro Mortgage will track the 3-month Euribor rate for 5 years with a margin of +2.15% and is available for loans up to 80% loan-to-value. The 3-month Euribor rate has been lower than its UK equivalent at all times since it was launched on the first day of 1999, and is currently 2.75% lower. This differential has been consistently at a similar level for some time now and is expected to remain so for the foreseeable future.
Ray Boulger, senior technical manager at Charcol, comments: “This is a new product that works in the same way as our renowned Federal Reserve mortgage which tracks the US Libor rate. The key to evaluating this product is the likely differential between short-term Euro and UK interest rates over the next five years. The cheapest conventional UK tracker mortgage over 5 years offers a rate of Bank of England Base Rate, 4.75%.”
“Historically, the Euro based short-term rate has always been cheaper than its UK counterpart. Although it is impossible to forecast, with any confidence, interest rates over a 5-year time span, I believe that this deal will be more competitive than a traditional UK funded loan. The virtually unanimous expectation of the markets is that future Euro Libor rates will be much less volatile than either their UK or indeed US counterparts. Furthermore, Euro interest rates are expected to remain very stable at least well into next year. And, of course, there is absolutely no currency risk.”
The product does have an arrangement fee of £999 that, for some, will seem high. However, to put the arrangement fee in context, £999 on a five-year deal is equivalent to £200 a year. With the average fee on a competitive 2-year deal currently £499, which equates to £250 a year, the arrangement fee looked at in this context is not uncompetitive.
