New mortgage customers are being lured by competitive tracker deals this week, weakening the position of the ever-popular fixed rate mortgage.Tracker mortgage
rates have plummeted in recent months as the base rate fell to 0.5 per cent, where it has remained since March, slashing hundreds of pounds of existing borrowers' mortgage repayments and making them more attractive to new borrowers. Fixed rate mortgages
have also come down in price recently, particularly for those with significant equity in their home or a large deposit, and experts have been urging customers who are looking for a fixed rate deal to act fast before interest rates start an inevitable climb upwards.
This week saw the inevitable happen, with fixed rate mortgage rates rising by an average 0.6 per cent, whereas some tracker mortgage rates fell by 0.3 per cent.
According to online mortgage
brokers Mortgageforce.co.uk, this week, fixed rate mortgages have accounted for 64 per cent of their business, compared to 75 per cent previously, with a third of borrowers signing up for tracker mortgages.
New borrowers now face a conundrum, Mortgageforce.co.uk explains, as fixed rates start to creep back up, but tracker mortgages threaten to do the same if the base rate follows suit.
Katie Tucker, technical manager for Mortgageforce.co.uk, believes that next week will be an equally confusing one for borrowers: "Whilst a borrower's choice between a fixed rate and a tracker is largely based on how they expect Bank 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," she comments.
Ms Tucker explains: "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."
She urges customers to consider affordability as the most important factor in choosing the right mortgage deal. Those who can afford a fixed rate mortgage, but would struggle to keep up if the repayments increased, should realise that a tracker mortgage poses a risk, and a fixed rate deal might be a safer option, Ms Tucker elaborated.
"These trackers may start low, but you must be sure that you could afford the payments if they did rise," she said.
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