There has been a spur in activity in the mortgage market since the Bank of England base rate dropped to 0.25 per cent, with lenders dropping the cost of the average two year tracker mortgage to below two per cent - its lowest level ever.
“Tracker mortgages can be more appealing to borrowers looking for flexibility, with most lifetime trackers without an early redemption charge. These charge reasonable rates of interest compared to Standard Variable Rate deals, which on average charge 4.78 per cent” explains Rachel Springall of Moneyfacts.co.uk, which monitors the mortgage market.
“Those taking out a two-year tracker deal based on the average [new] rate of 1.96 per cent, and assuming no further change to base rate, would find themselves £604.68 a year better off compared to the average two-year fixed mortgage today, and £3,598.44 better off than sitting on a SVR of 4.78 per cent” she says.
Her calculations are based on a £200,000 mortgage over a 25 year term on a capital and interest repayment basis.
She says it is highly likely that there may be another base rate fall as the mortgage market is anticipating some months of uncertainty following Brexit. “Therefore, switching to a tracker mortgage could reap many rewards as customers see their repayments fall.”
Fixed mortgage rates are also edging downwards, says Springall.
“The average two-year fixed mortgage keeps edging further down, now at 2.47 per cent versus 2.54 per cent six months ago and 2.68 per cent a year ago.”