If you are a pessimist on the economy, take a look at a new home loan from mortgage broker Charcol, writes Simon London.The interest rate starts at 5.99 per cent capped for three years. But, if the Bank of England base rate starts to fall, the interest rate on the loan will fall twice as fast.
Base rates are currently at 5.5 per cent. But, if the economy slides into recession, the Bank's monetary policy committee could easily cut rates by another 0.5 percentage points. In this event, the interest rate on the Charcoal loan would fall by 1 percentage point to 4.99 per cent.
There is no level below which the loan rate cannot fall. A serious recession could see base rates fall by another percentage point, in which case the Charcol rate would fall by 2 points to 3.99 per cent. Of course, the same gearing works in reverse. If the base rate goes back up, the home loan rate rises twice as fast - although only up to the 5.99 per cent cap.
Is it worth it? This depends on the path of base rates. You may do better taking a cheap fixed rate: three-year fixes at just under 5.5 per cent are available from Bristol & West and Derbyshire building society.
Base rates are currently at 5.5 per cent. But, if the economy slides into recession, the Bank's monetary policy committee could easily cut rates by another 0.5 percentage points. In this event, the interest rate on the Charcoal loan would fall by 1 percentage point to 4.99 per cent.
There is no level below which the loan rate cannot fall. A serious recession could see base rates fall by another percentage point, in which case the Charcol rate would fall by 2 points to 3.99 per cent. Of course, the same gearing works in reverse. If the base rate goes back up, the home loan rate rises twice as fast - although only up to the 5.99 per cent cap.
Is it worth it? This depends on the path of base rates. You may do better taking a cheap fixed rate: three-year fixes at just under 5.5 per cent are available from Bristol & West and Derbyshire building society.
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