Over a week has passed since the Bank of England base rate dropped to 0.25% – its lowest level in over 300 years – and it's had a swift impact on the mortgage market. Activity has seen a definite spike and mortgage rates have been cut across the board, As a result, the average two-year tracker rate has just broken the 2% barrier for the first time on record.
Our latest figures show that the average two-year tracker mortgage rate now stands at 1.96%, down from 2.02% six months ago and 2.01% at this time last year, with the recent drop being largely attributed to the base rate cut. Rates at all risk levels have benefited, too, as the table below highlights:
This isn't the only area to have benefited from recent events, either – rates in the fixed sector have seen a similar surge in activity in recent weeks, resulting in the average two-year fixed mortgage rate edging down to a new record low of 2.47% (down from 2.54% six months ago and a drop of 0.21% year-on-year).
Nonetheless, the drop in variable rates means that those who take out an average two-year tracker deal priced at 1.96% would be £604.68 a year better off than if they opted for the average two-year fixed mortgage (based on a £200,000 mortgage over a 25-year term on a capital and interest repayment basis) – and a whopping £3,598.44 better off than if they stayed on an average standard variable rate (SVR) of 4.78%.
The question is, will borrowers now flock to this type of deal? The market remains awash with record low fixed rate mortgages that offer borrowers more peace of mind in times of uncertainty, so it remains to be seen whether or not borrowers will take the plunge with variable rates – and they may not be able to benefit, anyway.
"Slashing the bank base rate has led to an impressive increase in activity among lenders looking to offer new tracker deals to prospective borrowers," said Rachel Springall, finance expert at Moneyfacts, "with both trackers and fixed rates reaching new lows.
"Those 1.5 million borrowers [according to figures from the CML] sitting on a tracker mortgage may assume that their repayments will now fall, but this will entirely depend on whether their deal will apply the full 0.25% cut – some deals, such as those with Shawbrook Bank, have a collar of 0.50%."
However, tracker mortgages may still be preferable for those seeking flexibility with their loan – many lifetime trackers don't charge early redemption fees, giving borrowers the chance to switch deals without such a restriction. These deals also tend to come with far better rates of interest than those on a standard variable rate (SVR), which on average charge 4.78%.
And is there the potential to benefit even more in the months ahead? "It needs to be said that there is a probable path for the base rate to fall further still, as the market braces itself for many months of uncertainty," added Rachel. "Therefore, switching to a tracker mortgage could reap many rewards as customers see their repayments fall. However, borrowers must always check the full details on their offer and, if they are unsure on what type of deal to pick, seek out independent financial advice."
Compare the top mortgage deals to make the most of the market
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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