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Tracker mortgage rates fall as competition increases

Tracker mortgage rates fall as competition increases

The average rate on two-year variable tracker mortgages has fallen steadily in the past nine months, according to the latest data from Moneyfacts.

The average rate of a two-year tracker — which typically follows the base rate at a fixed percentage above — now sits at 2.02 per cent, down from 2.10 per cent in April and 2.17 per cent last September.

Moneyfacts found this has occurred alongside a spike in the number of products available within the tracker range.

Consumers can now choose from 203 variable tracker rate mortgages, up 10 per cent from the 185 options available just last month. 

Although the majority of those products are available at 75 per cent loan to value or below, at least 80 of the products on the market can be taken out for a higher ratio.

Darren Cook, finance expert at Moneyfacts, said the increasing number of products on the market and the subsequent intensifying of competition had driven the average rate down.

He said: "This arguably goes against recent trends, as attention has up until now been more focused on driving rates down in the fixed sector of the market, signalling a potential change of direction among providers.

"By comparison, the average two-year fixed mortgage rate at 60 per cent LTV is 1.90 per cent — 0.18 per cent higher than its variable counterpart."

Mr Cook said the best two-year variable tracker rates can be found at a low-risk tier of 60 per cent LTV, where the average rate currently stands at 1.72 per cent.

This is 0.30 percentage points below the overall average two-year variable tracker rate of 2.02 per cent.

In comparison, the average two-year fixed mortgage rate at 60 per cent LTV is currently 1.90 per cent, which is 0.18 per cent higher than its variable counterpart average.

Mr Cook said it was to be expected that the average fixed rate would be greater than that of the average variable rate, as borrowers paid more for the certainty of monthly payments with a fixed deal.

He added the price of variable mortgages could go up soon despite the main external factor that would affect variable rates, the Bank base rate, forecast to increase just once by 2021.

Mr Cook said: "It can't be denied however that with current economic conditions so unpredictable, this timescale may shorten, and variable mortgage rates could increase sooner as a result.

"Therefore, a variable rate of interest may not suit those who are risk-averse – but it all comes down to personal choice. 

"Ultimately, 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, so as to avoid any nasty surprises later on."

imogen.tew@ft.com