'Tracker' mortgages fall to rates of nearly THREE percent

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‘Tracker’ mortgages fall to nearly THREE percent – making them £973 a month cheaper than fixed-rate versions amid sharp interest rate rises

  • Tracker mortgages have this week fallen to rates as low as 3.29 percent
  • Mortgage brokers say they are not recommending fixed rate deals to any clients
  • Fixed rate deals remain at an expensive average rate of around six percent

Building societies are offering new variable rate mortgages for as little as 3.39 percent with a five percent deposit as they outstrip fixed term rates in affordability following the economic turmoil in the aftermath of Liz Truss’ mini-budget.

‘Tracker’ mortgages are quickly becoming the cheapest deals on the UK’s mortgage market as leading brokers maintain fixed rates mortgages at more than six percent in reaction to the high Bank of England interest rates.

Building societies are now offering rates as low as 3.39 percent for buyers with a five percent deposit in a sign of the mortgage market settling and in preparation for fixed rate mortgages to also come down.

For higher deposit rates, deals are even better. Yorkshire building society is offering a 3.29 percent tracker rate to those with larger deposits, compared to the current average two-year fixed deal at 6.21 percent.

At a mortgage level of £400,000 this equates to a monthly saving of £973, the Telegraph reports. 

Following Liz Truss and Kwasi Kwarteng’s disastrous unfunded mini-budget, mortgage rates quickly spiralled to their highest level in years, with the average fixed term deal exceeding six percent.

But brokers say they are now seeing much higher demand for tracker mortgages, which rise and fall in line with the Bank of England’s interest rate.

Yorkshire Building Society is offering a tracker rate of 3.49 percent for customers who can pay a 15 percent deposit, 2.13 percentage points lower than the equivalent two-year fixed rate at 5.62 percent. This would save buyers £412 per month

This is thought to be in anticipation of fixed-term mortgage rates dropping significantly over the coming weeks and months, meaning customers who take out a deal now will find themselves paying more for a longer period of time.

With uncertainty still in the market mortgage lenders are being forced to offer higher-rate fixed deals as the Bank of England’s interest rates are not thought to have peaked.

But with tracker deals, this price hedging does not need to occur as rates rise and fall along the Bank’s baseline automatically. 

Based on a buyer purchasing a property for £400,000 and looking for a two-year deal, Skipton Building Society is offering new customers a tracker mortgage at 3.39 percent, or £2,376 per month, with just a five percent, or £20,000, deposit.

Their fixed rate deal for the same deposit is almost two percentage points higher at 5.07 percent, or £2,832 per month.

Meanwhile Yorkshire Building Society is offering a tracker rate of 3.49 percent for customers who can pay a 15 percent deposit, 2.13 percentage points lower than the equivalent two-year fixed rate at 5.62 percent. This would save buyers £412 per month. 

Coventry Building Society has also joined the tracker trend – offering 3.98% or £1,790 per month for a 15 percent deposit, compared to 5.45 percent for a fixed deal, which would cost £2,077 monthly.

Nationwide is also offering significantly cheaper tracker rates with a deposit of just five percent required – at 5.99 percent for a fixed deal and 5.34 percent for a variable rate, saving customers £149 per month. 

Craig Fish, Director of Lodestone Mortgages & Protection, told MailOnline the price difference is ‘staggering’.

He said: ‘I am not recommending fixed rates to anyone at present, as I think there is still quite a bit of room for downwards momentum on these. Looking at current rates the lenders have still got quite a bit of margin built into these at the moment, and this can be trimmed further. 

‘I am hoping that fixed rates drop below four percent at some point in the no doubt challenging New Year as lenders look to eat into their annual lending targets early. 

‘At this point I will likely start recommending fixed rates again, but until then its tracker and discounted variable rates, without ERC’s, all the way.’

He added: ‘The difference in pricing is staggering. When you can get a tracker at almost three percent lower than the nearest fixed rate, with savings on monthly payments in some cases in excess of £500 pcm, it’s a no-brainer.’

The West Brom building society is offering a two year tracker deal at 3.94 percent, or payments of £1888 per month, with a fixed rate of 5.49 percent, equivalent to £2208 per month.

But some brokers are showing more caution, with Leeds Building Society’s website stating it is still not offering any tracker mortgages to customers.

This comes after five-year fixed mortgage rates dropped below six percent for the first time in seven weeks, data revealed yesterday. 

The average five-year fix is now 5.59 percent, down from a 14-year high of 6.51 percent last month, says comparison website Moneyfacts. 

It says two-year fixed rates have also decreased, with deals averaging at 6.13 percent, down from a peak of 6.65 percent in October. 

Yesterday Santander and Barclays both decreased their fixed-rate deals by 0.3 percentage points. 

Around 80 percent of mortgages are currently fixed. 

Rachel Springall, finance expert at Moneyfacts, says: ‘Borrowers may well breathe a sigh of relief to see that fixed mortgage rates are starting to fall, but there may be much more room for improvement. 

‘Rates could fall further still, but there is no clear answer as to how quickly that may be. 

‘Borrowers may feel they have to be patient for a little while longer before they commit to a new fixed mortgage.’

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