Do Tracker Mortgages Represent a Better Deal?

Much has been made in the press recently about the competitive nature of the mortgage market, not to mention the recent drop in the base rate to an eye-opening 0.25%. This has meant mortgage holders with tracker mortgages have seen a drop in their interest rate. The current rate has dropped below 2% – the first time this has happened, dropping to 1.96% as a result. This is the average figure calculated by Moneyfacts in relation to the average two-year tracker mortgage rates seen on the market at the moment. The rate drops even lower for those on a 60% LTV (loan-to-value) tracker mortgage, with the average coming out at 1.81% in this instance. This has led to many people asking one question will this drop see more new mortgage applicants trying to apply for tracker mortgages instead of fixed rate deals? The pros and cons of tracker mortgages The current super-low rate is obviously going to be a major draw for some. Those looking for the lowest interest rate they can get may well be drawn to this product. However, many mortgage holders prefer more stability in terms of the rate attached to their particular mortgage. The very point of a tracker mortgage is that it tracks the current base rate determined by the Bank of England. If that rate increased for any reason, so would the interest rate paid by those with these mortgages. As such, a tracker mortgage does not traditionally provide any long-term security with regard to the level of payments made. Are we living in different times? The 0.5% base rate had of course been in force for several years before it changed. Even then, there was a lot of speculation over whether the rate would rise. In the end, the opposite happened. With the uncertainty surrounding Brexit, there is a chance it could go lower still, although we are a long way off anything like that happening. With that said, many people will still prefer to opt for a fixed rate deal that offers them increased stability. There are, after all, many appealing fixed rate mortgage deals on the market today. They may not have interest rates quite as low as the average tracker rate mentioned above, but they still offer a good deal and are more than capable of appealing to a wide section of the market. Being able to fix an interest rate for two, three or even five years is very appealing for those on a budget. Indeed, while the base rate has just dropped, it is understandable that people would want to fix a rate that gives them some peace of mind throughout the next few years. No one knows how low the interest rates will end up going, or whether things will take a turn in the opposite direction. Anyone wanting security will still be very tempted to go for a fixed rate rather than a tracker, especially if they want to know exactly what their payments will be for the foreseeable future.

Published on 21 August 2016

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