The forthcoming Moneyfacts UK Mortgage Trends Treasury Report can reveal that the average two-year tracker rate has fallen for the third consecutive month, reaching 1.92% this month. This is the lowest this rate has been since the base rate rise seen in November last year.
A tracker mortgage offers a variable rate that tracks another, external rate. Most often this is the base rate – so if the Bank of England increases the base rate of interest, all tracker rates will go up by the same amount. You can learn more about tracker rates by reading our guide on them.
Due to the nature of tracker rates, it may seem odd that they have fallen recently, since base rate is expected to go up at least once this year. Charlotte Nelson, finance expert at Moneyfacts, explains that "since competition in the fixed rate market has reached new heights, providers have started considering the variable rate sector as a new avenue in which to attract borrowers."
As a result, Charlotte found that: "The average two-year tracker rate has fallen yet again, decreasing by 0.08% since March and marking a drop of 0.02% on a monthly basis … This is the third consecutive monthly reduction and the lowest average two-year tracker rate since the base rate rise in November 2017."
And that's not the only good news for those considering such a deal. The number of two-year tracker deals has risen from 222 at the start of the year to 246 deals this month, which considering how small the market is compared to the fixed rate mortgage market indicates that the new deals may have had a particularly large impact on the average rate.
"Despite this small resurgence, demand for such deals is likely to be relatively low, particularly with a base rate rise looming on the horizon," Charlotte said. "That said, the average two-year tracker rate is still considerably lower than the average two-year fixed rate, which stands at 2.52% this month."
The lower rates on offer with variable rate mortgages may sway some, "particularly if they have large enough equity in their home that would ensure they're not as affected by a rate rise if one occurred," as Charlotte stated. If this isn't you, however, then a fixed rate deal should not be discounted.
Fixed rate mortgages offer the security of set repayments for the entirety of the mortgage term, which can be ideal for those with a tight budget – even if it means picking a slightly higher rate at the moment. Remember that the main feature of variable rates is that your mortgage payments can change at any time As Charlotte concludes: "any borrower considering a variable rate as an option will need to weigh up all the pros and cons before entering a deal."
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