Is it a good time to take a tracker rate mortgage now they are cheaper than many fixed rates?
Tags: Remortgages, Residential mortgages
Quick Summary
Tracker mortgages have become unusually competitive, with some two-year deals starting just 0.19 percentage points above the Bank of England’s 3.75% base rate, undercutting many fixed-rate mortgages now priced above 4%. The article argues this makes trackers worth considering, especially for borrowers focused on lower monthly payments and flexibility. However, the main risk is that any future base rate rises would quickly make these deals more expensive. The advice is to choose tracker products with low or no early repayment charges and, ideally, the option to switch to a fixed rate without charge. Trackers may suit borrowers expecting to move soon or whose circumstances could change, but anyone nearing renewal may need to remortgage to access the best options.
With the Bank of England base rate set to stay on hold for March and with so many lenders pushing up the price of their fixed-rate mortgages, is it a good time to take out a tracker-rate mortgage?
The most competitively priced two-year Bank of England base rate trackers start from 0.19% over the current 3.75% base rate, while the lowest fixed rates are just over 4%.
Now they are just about the cheapest deals on the market. Is now the time of the tracker?
Bank of England tracker rates have always had a place in the market, but the overwhelming majority of borrowers have consistently taken two or five-year fixes. Now that they are undercutting the cheapest fixed rates, they will get more attention as many look to minimise their monthly repayments.
Halifax, HSBC and NatWest often have the best tracker rates, and they are available for a range of deposit sizes. Like with fixes, the smaller your deposit, the more expensive they get. The best rates are available with a 40% deposit, but the 25% deposit trackers are also pretty good.
Do you think more people will be tempted?
More borrowers will be tempted to take on trackers as they wait to see what happens to fixes once the situation in the Middle East calms down. The only issue is that there has been talk of the Bank of England's Monetary Policy Committee raising the base rate to manage the threat of inflation. If this happens once or twice, then they will suddenly look a lot less attractive.
What's your advice to clients who want one?
If you take a tracker rate, check that it either has no early repayment charges or very low exit charges. Ideally, if you take a variable rate, you should take one that lets you switch into a fixed rate without being penalised.
Tracker rates used to be taken by people who thought they might end up paying less on a variable rate, but then the fixes started to undercut the trackers, so there was less point in taking them. They are still a good option for those needing flexibility, as they often have no tie-ins. This means borrowers can use them as a short-term option if they expect to move home soon or if their situation may change within a couple of years.
Many lenders do not offer their existing customers tracker rates, especially without early repayment charges, so if your mortgage is coming up for renewal, you may need to remortgage with another lender if you really want one.
Speak to a Trinity Financial adviser today
The mortgage market moves fast — and the right advice can make a significant difference to the rate and deal you secure. Get in touch with our team to discuss your options.
Call Trinity Financial on 020 7016 0790 to secure a fixed or tracker rate mortgage, book a consultation, or use our appointment calendar
The information contained within was correct at the time of publication but is subject to change.
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