Mortgages  

Link between base rate and trackers broken: Moneyfacts

Link between base rate and trackers broken: Moneyfacts

While the Bank of England base rate has now been held at 0.5 per cent for seven years, Moneyfacts analysis shows the average two-year tracker mortgage rate has increased by 0.06 per cent since November.

Charlotte Nelson, a spokeswoman for the consumer finance website, said this proves the link between the interest rates and mortgage has been broken.

She explained this could be due to external economic threats – unemployment, wage increases and a decline in interest in this type of mortgage.

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The percentage of tracker mortgages taken up has fallen from 9 per cent to 7 per cent in just one year, according to the Council of Mortgage Lenders statistics from the end of March.

Ms Nelson said: “This suggests that the appetite for this type of product has waned in favour of deals that boast greater security. As a result, lenders have begun to focus more attention on the fixed-rate mortgage market, leading to declining tracker mortgage product numbers and fewer low-rate deals.”

 

May-14

May-15

Nov-15

Today

Average Two-Year Tracker Mortgage

2.77%

2.02%

1.98%

2.04%

Lowest Two-Year Tracker Mortgage

1.54%

1.09%

1.04%

1.28%

Average Lifetime Tracker Mortgage

3.19%

3.26%

3.31%

3.08%

Number of Variable Tracker Mortgages

361

351

381

313

Source: Moneyfacts.co.uk

 

 

 

Compiled: 4.5.16

 

She pointed out that tracker mortgages do still have some advantages, such as no early redemption charges, which gives borrowers flexibility.

“Tracker mortgages may also prove cost-effective over a shorter term; for example, borrowers would be £595.92 a year better off if they opted for the average two-year tracker mortgage compared with the average two-year fixed-rate deal, which currently has a rate of 2.54 per cent,” said Ms Nelson, noting that this was based on a £200,000 mortgage over a 25-year term on a capital and interest repayment basis.

“A key question for any borrower when considering such a deal is whether or not they could handle a rate increase if the base rate were to rise.”

Adviser view

Andrew Montlake, director at Coreco Mortgage Brokers, said: “Even though the likelihood of a base rate rise has diminished, even a small rise would have a disproportional effect at this time, so the insurance a fixed rate provides is welcome for many borrowers, especially at a time when two, three and five-year fixes look such good value.”

peter.walker@ft.com