Tracker mortgages are now more affordable than fixed-rate deals, as expectations grow for the first Bank Rate cut in four years. This shift is anticipated to increase the uptake of variable-rate schemes.
The Current Mortgage Landscape
Currently, around 1.5 million homeowners are on variable rates that follow the Bank of England’s 5.25% rate, plus a set margin. Analysts at Moneyfacts report that today marks the first time since November that the average two-year tracker mortgage rate has dipped below the two-year fixed rate. The average two-year tracker rate now stands at 5.94%, while the popular two-year fixed rate has edged up to 5.95%.
David Hollingworth of London and Country Mortgages noted,
“Fixed rates have gone up a little bit due to market expectations that the Bank Rate might be higher than previously anticipated. They expect it to eventually be cut, but the timing is uncertain. When it does drop, trackers will likely become more popular as borrowers consider long-term gains.”
Anticipation of a Rate Cut
Opinions are divided on when the Bank of England will lower its interest rate, with a potential cut on June 20. The European Central Bank recently cut interest rates from a record high of 4% to 3.75%, which could influence the Bank of England’s actions.
Despite the uncertainty, most homeowners currently prefer fixed-rate deals. A spokesman for Santander, the UK’s fourth-largest mortgage lender, stated,
“We see around 10% of remortgaging customers opting for a tracker product. This has remained fairly static, with no recent increases.”
Moneyfacts data shows there are 2,351 two-year fixed-rate deals on the market, compared to 361 tracker deals. The cheapest tracker rate is 5.35% (Bank Rate plus 0.1%) offered by Nationwide.
Potential Savings with Trackers
For a mortgage-holder with £300,000 left on a 25-year home loan, the Nationwide tracker deal would result in a monthly payment of £1,815. If the Bank Rate falls by 0.25% in two weeks, the tracker rate would follow, reducing the monthly payment by £44 to £1,771.
Caitlyn Eastell from Moneyfacts commented,
“Borrowers comfortable with the risk of a variable-rate mortgage may find today’s news encouraging, especially with inflation rates nearing the target of 2%. However, the cheapest fixed deals are still undercutting tracker rates. It is crucial for borrowers to seek professional advice if unsure about the best deal for them.”
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Conclusion
The evolving mortgage market dynamics indicate a potential rise in the popularity of tracker mortgages, especially if the Bank Rate is cut. With various options available, it’s essential to seek professional advice to determine the best mortgage deal. Remember, Angel Properties can assist you with selling your property efficiently and effectively. Visit www.angelproperties.uk for more information.
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