The average two-year tracker mortgage has fallen below 2 per cent for the first time on record, following the Bank of England’s decision to cut its base rate to 0.25 per cent.
Moneyfacts market analysis suggested the Monetary Policy Committee’s move has led to a spur in activity in the tracker market.
Whether borrowers will flock to this type of deal remains a mystery, as the market is currently flooded with low fixed rate deals that offer borrowers more peace of mind in times of uncertainty, the comparison site suggested.
Spokeswoman Rachel Springall said trackers are reaching new lows, along with fixed rates.
“The average two-year fixed mortgage keeps edging further down, now at 2.47 per cent, versus 2.54 per cent six months ago and 2.68 per cent a year ago,” she pointed out.
“Those 1.5 million borrowers sitting on a tracker mortgage may assume that their repayments will now fall, however this will entirely depend on whether their deal will apply the full 0.25 per cent cut – some deals, such as those with Shawbrook Bank, have a collar of 0.50 per cent.”
In the run up to the BoE decision, several lenders increased rates on tracker mortgages, by as much as 0.4 per cent.
|
| Aug-15 | 6 Months Ago | Today |
| (All LTVs) Two-Year Tracker Average Mortgage Rate | 2.01% | 2.02% | 1.96% |
| 60% LTV Two-Year Tracker Average Mortgage Rate | 1.72% | 1.84% | 1.81% |
| 90% LTV Two-Year Tracker Average Mortgage Rate | 3.35% | 2.62% | 2.35% |
|
| Compiled: 16.8.16 | ||
Ms Springall said tracker mortgages can be more appealing to borrowers looking for flexibility with their loan, as most lifetime trackers come without an early redemption charge. For instance, last week Accord Buy To Let launched a range of new tracker mortgages with no early repayment changes.
“These trackers charge reasonable rates of interest compared to standard variable rate deals, which on average charge 4.78 per cent,” she noted.
Based on a £200,000 mortgage over a 25-year term, on a capital and interest repayment basis, someone taking out a two-year tracker deal based on the average rate of 1.96 per cent - assuming no further change to base rate - would find themselves £604.68 a year better off compared to the average two-year fixed mortgage today, according to Moneyfacts; and £3,598.44 better off than sitting on a SVR of 4.78 per cent.
“It needs to be said that there is a probable path for the base rate to fall further still, as the market braces itself for many months of uncertainty,” added Ms Springall.
“Therefore, switching to a tracker mortgage could reap many rewards as customers see their repayments fall. However, borrowers must always check the full details on their offer and, if they are unsure on what type of deal to pick, seek out independent financial advice.”
peter.walker@ft.com
