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Fixed rate mortgages tend to be the product of choice for the majority of borrowers, but the latest Moneyfacts UK Mortgage Trends Treasury Report may cause some to think again, with the figures showing that the average two-year variable tracker mortgage rate has fallen substantially in the last month.
The average now stands at 2.02%, a drop of 0.08% from April (when it stood at 2.10%) and down 0.15% from the rate seen in September last year, a month after the Bank of England base rate increased to 0.75%. Given that tracker mortgages typically "track" base rate, the latest reductions may be particularly surprising given that base rate hasn't changed in the months since.
Further research shows that there are currently 203 variable tracker rate mortgages available, an increase of 18 products from last month (185). Of those currently on offer, 123 products are available to borrowers who require a maximum loan-to-value (LTV) of 75% and below, while the remaining 80 products are available to borrowers who require a mortgage of between 80% LTV and 95% LTV, offering plenty of choice for all sectors of the market.
|Two-year variable tracker rate mortgages||Sep-18||Apr-19||May-19|
|Products at 75% LTV and below||120||104||123|
|Products at 80% LTV and above||86||81||80|
|Total number of product available||206||185||203|
"It appears that the increasing number of products this month, and subsequent intensifying competition, has driven the average two-year variable tracker rate down," said Darren Cook, finance expert at Moneyfacts.co.uk. This arguably goes against recent trends, as attention has up until now been more focused on driving rates down in the fixed sector of the market, signalling a potential change of direction among providers.
There are wide variations depending on loan-to-value, too, with it often possible to find rates that are far lower than the average – and they typically beat fixed rates as well. "As expected, the best two-year variable tracker rates can be found at a low-risk tier of 60% LTV, where the average rate currently stands at 1.72%, which is 0.30% below the overall average two-year variable tracker rate of 2.02%," said Darren. "In comparison, the average two-year fixed mortgage rate at 60% LTV is currently 1.90%, which is 0.18% higher than its variable counterpart average.
"Of course, it is to be expected that the average fixed rate will likely be greater than that of the average variable rate, as borrowers pay more for the certainty of monthly payments with a fixed deal. The amount of interest a borrower is required to pay monthly on a variable tracker rate mortgage could of course change over time, but any fluctuations in rate are likely to be linked to external factors such as the Bank of England base rate – and markets are forecasting just a single interest rate increase by 2021."
However, it can't be denied that with current economic conditions so unpredictable, this timescale may shorten, and variable mortgage rates could increase sooner as a result. Therefore, a variable rate of interest may not suit those who are risk-averse – but it all comes down to personal choice. Ultimately, those considering a variable rate tracker mortgage should always factor in any rate rises that could affect whether they can afford the monthly repayments for the length of their term, so as to avoid any nasty surprises later on.
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