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Tracker rates rise despite record low Base Rate

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04/05/2016
The cheapest two-year tracker rates have risen from 1.04% to 1.28% in the last six months
Tracker rates rise despite record low Base Rate

Tracker mortgage rates have started to rise as demand falls for the product, according to figures from financial information provider, Moneyfacts.

It says that the average two-year tracker mortgage rate has increased by 0.06% since November 2015, despite the fact that the Bank of England Base Rate has now been on hold at 0.50% for seven years.

Charlotte Nelson, finance expert at Moneyfacts.co.uk, said: “The increase in the average rate of tracker mortgages is evidence that the link between Base Rate and mortgages has been broken – there has been no rise in the Bank of England Base Rate and yet the lowest two-year tracker mortgage rate on the market has risen from 1.04% to 1.28% in just six months.

“This could be due external economic threats i.e. unemployment, wage increases and a decline in interest in this type of mortgage – the percentage of tracker mortgages taken up has fallen from 9% to 7% in just one year, which suggests that the appetite for this type of product has waned in favour of deals that boast greater security. As a result, lenders have begun to focus more attention on the fixed rate mortgage market, leading to declining tracker mortgage product numbers and fewer low-rate deals.”

But Nelson argued that tracker mortgages have advantages that could suit the right borrower.

“For instance, the majority of lifetime tracker mortgages have no early redemption charges, which gives borrowers a fair amount of flexibility, ” she said. “This flexibility can also be achieved by sitting on a standard variable rate (SVR), but this could prove to be more costly; for instance, those who choose the average lifetime tracker mortgage would be £190.38 a month better off than if they were sitting on the average SVR of 4.81%.”

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