Tracker mortgages are largely cheaper than fixed rate mortgages at the moment, but a one per cent rise in the base rate would change everything, moneysupermarket.com is warning borrowers.
As the base rate has fallen, bottoming out at 0.5 per cent and wiping hundreds of pounds of tracker borrowers' monthly repayments,
tracker mortgages have seemed increasingly attractive, but Moneysupermarket has warned that this cannot last.
The majority of economists predict that interest rates will not fall any further, and, while they could remain low in the coming months, will inevitably start to rise again by the end of the year, making a
fixed rate mortgage the safer option.
Moneysupermarket has calculated that at current interest rates, a borrower with a £300,000 fixed rate mortgage would be paying £100 a month more than if they were on a tracker mortgage.
But, moneysupermarket.com warns that an increase in interest rates of just one per cent could turn it around, and urges borrowers not to ignore the potential perils of unexpected rises in the base rate, which has remained static since March.
While tracker mortgages might seem tempting now, the comparison website is urging borrowers to consider the long term risks alongside the short term benefits.
A base rate rise of two per cent could see tracker mortgage payments rise by £76 or £152 on a
mortgage of £150,000 or £300,000 respectively, and if interest rates were to return to the 2008 levels of 4.5 per cent, the increase in monthly repayments could be as much as £260 or £520 more respectively.
"Borrowers should not be seduced by the opportunity to make short term savings by opting for a tracker mortgage deal," said Louise Cuming, head of mortgages at moneysupermarket.com. "They must take the expected Base Rate rises into consideration right from the start, and make sure that they can still afford repayments when the Bank of England begins to reverse the cuts.
"Anyone thinking about fixing must act quickly," Ms Cuming urges. "Lenders are increasing rates on an almost daily basis and there is a strong feeling that we have now passed the bottom of the mortgage market."
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Fair Investment Company Ltd
