They might provide less certainty, but tracker mortgages are currently looking more competitive, offering increased product choice and lower rates, the latest analysis has revealed.
Tracker mortgages charge interest at variable rates, which can go up and down according to external influences, usually the Bank of England’s base rate.
New figures from Moneyfacts.co.uk reveal average tracker rates for two-year mortgages have been falling and are currently at 2.02%, despite the Bank of England increasing its base rate by 0.25% to 0.75% in August 2018.
Indeed, just a month after this increase the average variable tracker rate had plunged by 0.15% and now stands at only 0.07% above the average rate prior to the rate rise, Moneyfacts revealed.
There is also more choice for borrowers. Moneyfacts reported the number of tracker products has increased from 185 to 203 between April and May alone.
Darren Cook, finance expert at Moneyfacts, said: “It appears that this increasing number of products this month, and subsequent intensifying competition, has driven this average variable rate down.”
Lowest rates
The best two-year tracker rates are available for the lowest risk borrowers, indeed for anyone with 40% equity to put into their property, average rates of 1.72% are available. By comparison, the average fixed-rate deal for anyone with 40% equity is 1.90%.
Cook added: “Of course, it is to be expected that the average fixed two-year rate will likely be greater than that of the average variable rate, as borrowers pay more for the certainty of monthly payments with a fixed deal.”
Future rate hikes
He added a note of caution: “The amount of interest a borrower is required to pay monthly on a variable tracker rate mortgage could of course change over time, but any fluctuations in rate are likely to be linked to external factors such as the Bank of England base rate.”
According to Moneyfacts, there have been forecasts of a single interest rate rise by 2021. However, current economic conditions make this unpredictable and Moneyfacts warned the timescale may shorten and variable mortgage rates could increase sooner as a consequence.
Cook added: “Therefore, those considering a variable rate tracker mortgage should always factor in any rate rises that could affect whether they can afford the monthly repayments for the length of their term.”
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