New borrowers face rate conundrum

Trackers are so comparatively low at present that one third of new borrowers signed up for them this week (25 June), according to Mortgageforce.

The consistently upward trend of new borrowers taking fixed rates has faltered as borrowers respond to mortgage price increases of around 0.6% on fixed rates, and a cut of up to 0.3% to many trackers.

Where 75% of Mortgageforce’s borrowers had been taking fixed rates, this has fallen to only 64% this week.

Katie Tucker, technical manager for Mortgageforce, said: “Next week will be as confusing for borrowers; while a borrower’s choice between a fixed rate and a tracker is largely based on how they expect the Bank Base rate to behave in the next few years, when the price difference between the two is this significant, it’s difficult to resist the cheaper one.

“The lenders have to keep their split between customers on fixed rates and tracker rates even, to mitigate the risk of their own wholesale costs rising; so they price their fixed and tracker deals to attract attention accordingly.

“My advice to people arranging mortgages this week comes down to affordability: If you can afford the monthly payments on a fixed rate, but would not be able to afford more than that, a tracker would pose that risk, so consider the security of the fixed. These trackers may start low, but you must be sure that you could afford the payments if they did rise.”