With lenders releasing improved tracker rates then could this type of mortgage product offer better value in the current market in the short term?
The above is a question that we are seeing being discussed within the mortgage industry more and more. A prominent lender recently withdrew a number of their tracker products. Why? Well, there may have been a number of reasons for doing this but one, in my opinion, is an explosion in their popularity. Perhaps that lender considered the volume of mortgage applications they were receiving for tracker products as too many at this time, and wanted to promote their fixed rate options instead as it is on these that they can currently make more of a profit?
I know of some brokers who are not recommending fixed products in the current market and that tracker mortgages have, over the last couple of weeks, become more competitive. Why?
For some clients who are not totally risk averse then they can offer greater value for money with the rates available being significantly lower than their fixed rate counterparts. Many of us expect fixed rates to reduce further as we get further into 2023 and beyond however in the short term, the tracker mortgage, has been the popular choice for those not wishing to tie themselves into a fixed rate for the next two years or longer. This is with the belief that over that period of time, while the base rate may rise further in the short term, longer term we may see it reduce as inflation comes under control and the Bank of England look to help the UK economy weather and exit a recession.
We are starting to see lenders’ appetite for new business increase which is driving competition especially in the offering of tracker mortgages. Swap rates, the interest rates that have more of an impact on the mortgage rates you and I pay, are continuing to reduce therefore we would expect to see fixed rates reduce further in the coming months as well. However, for those that need to move home now, or are seeing their current mortgage deal end shortly, rather than wait for what might happen with fixed rates, tracker mortgages are arguably offering better value at this moment in time when compared to fixed rate mortgages as the price difference is so noticeable at the moment. With the majority of trackers having no early repayment Charges then borrowers can enjoy the lower tracker margins now and then look to exploit the lower fixed costs that are expected in the future when they become available.
Importantly, trackers shouldn’t be approached without proper advice and that’s why I would always promote any borrower to seek proper mortgage advice, especially in the current market, in relation to not just how much they can afford to borrow but on what basis, and what type of mortgage, that will best suit them.
If you would like advice on your mortgage, then please get in touch.
*Your home maybe repossessed if you do not keep up repayments on your mortgage.