The latest cuts put Santander’s cheapest tracker rate at 3.74 per cent, well below average fixed rates which currently range from 5 to 6 per cent.
Last week, Co-operative Bank’s intermediary lending arm - Platform - was one of the first to launch sub-5 per cent deals again as rates across the board fell to month-old levels.
Today (November 22), Coventry for Intermediaries also cut its fixed rates by 0.15 per cent, taking one of its five-year fixes to 4.99 per cent.
Barclays also cut its two-year tracker rates today by up to 0.25 per cent.
Trackers seem to be the best game in town at the moment.Lewis Shaw, Riverside MortgagesDespite the Bank of England’s base rate rise to 3 per cent this month, rates have fallen because many lenders priced in larger base rate rises following Truss’s sweep of unfunded tax cuts.
Tracker rates follow the base rate.
Riverside Mortgages owner Lewis Shaw said “trackers seem to be the best game in town at the moment”.
He added: “Given market expectations that the base rate won't hit the peaks that lots of people thought it would, for those happy to take on a bit of risk, their reward could be mortgage rates that remain below their fixed rate brethren even taking account of further base rate hikes.”
Rather than banks wanting borrowers on trackers, Shaw said the cuts to these products are taking into account the fact that when risk-free rates rise again, so will swap rates - a leading indicator for mortgage rates.
“By extension, fixed rates will face upward pressure again, whereas setting margins on trackers is relatively straightforward forward,” Shaw explained.
“Trying to predict volatility in swaps is a thankless task and one that, if a lender gets wrong, can be costly.”
Chartered adviser for Ash Ridge Financial Services, Jane King, said the rate reductions were “significant” but highlighted the risk borrowers face by moving to a tracker rate.
“The downside is that as they are variables, they will rise if bank base rates increase in the future and so people who do not like taking risk tend to prefer to pay the additional for peace of mind,” said King.
King, like other brokers, had predicted rates would fall when lenders needed to get competitive again.
“If they could have kept them [rates] high then it would make sense to do so as it would increase their margins. This strategy has clearly not worked.”
Other lenders have also been cutting their variable rates.
Skipton announced last week (November 15) it had cut its two-year residential base rate tracker to 3.39 per cent.
“A month ago, the very idea of mortgage rates falling was pie in the sky,” said founder of Rose Capital Partners, Richard Campo.
With fixed rates also falling, Campo said he was starting to see a return to an acceptable level of pricing - even without having to take on the risk of “going variable” to get a lower rate.
ruby.hinchliffe@ft.com
