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Want a low mortgage rate? Take a look at trackers

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The cost of trackers has fallen as the number of products has increased - and rates are low
Want a low mortgage rate? Take a look at trackers

The average two-year tracker rate has fallen by 0.08% in May to stand at 2.02% (down from 2.10% in April 2019), said Moneyfacts.

A tracker rate is set at an agreed margin to the Bank of England Base Rate – such as Base Rate plus 1.5 percentage points – and it moves up and down in line with Base Rate movements.

This means that if wider interest rates rise, your payrate automatically rises too. If they fall, your payrate tracks down too.

This is different to a fixed rate, where your payrate is set in stone for an agreed period no matter what happens to the Base Rate.

The advantages of a tracker is that rates are usually very low, and they can fall further if the Base Rate is reduced. Borrowers also like their transparency.

However, they are variable which means there is potential for your payrate to increase, and there is no limit to how high it could go.

With a tracker, you are taking a chance that rates won’t rise beyond your comfort zone.

More competition

There are currently 203 variable tracker rate mortgages available in the market, an increase of 18 products from last month. Of the products currently on offer you will need a deposit of at least 25% to access 123 of them.

Darren Cook, finance expert at Moneyfacts, said: “It appears that this increasing number of products this month, and subsequent intensifying competition, has driven this average variable rate down.

“As expected, the best two-year variable tracker rates can be found at a low-risk tier of maximum 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%.

“In comparison, the average two-year fixed rate at maximum 60% LTV is currently 1.90%, which is 0.18% higher than its variable counterpart average.”

Cook added that it’s to be expected that the average fixed two-year rate will be higher 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.”

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