Fall in base rate helps tracker mortgage deals fall to record lows

Posted 24 August 2016 by Nick Parkhouse

In a year where mortgage interest rates have continued to fall, there are new lows following the recent Bank of England base rate reduction...

The recent decision by the Bank of England to reduce the base rate by 0.25% has benefited millions of borrowers on tracker and variable rates. The cut has also had a knock-on effect on new mortgage deals, with the average two-year tracker rate falling to a new record low of under 2%.

Tracker deals are currently cheaper than their fixed-rate counterparts, so which is best?

Average two-year tracker deals falls below 2% for first time on record

The recent cut to the base rate saw borrowing rates fall to the lowest level in over 200 years. Now, new data has revealed that the average two-year tracker rate has fallen to 1.96% - below the 2% barrier for the first time on record.

While largely attributable to the base rate cut, the average two-year deal has fallen from 2.06% six months ago. There's also good news for first-time buyers, with the average two-year tracker deal at 90% loan-to-value having fallen from 3.35% a year ago to 2.35% today.

Financial analysts Moneyfacts also reveal that fixed rates have also fallen in recent weeks. The average two-year fixed rate is now 2.47%, down from 2.68% just 12 months ago.

According to Moneyfacts, these falls mean that, based on a £200,000 repayment mortgage over 25 years, borrowers choosing a tracker deal would be £604.68 a year better off on average.

Rachel Springall, finance expert at Moneyfacts, says: "Slashing the bank base rate has led to an impressive increase in activity among lenders looking to offer new tracker deals to prospective borrowers with both trackers and fixed rates reaching new lows. Those 1.5million borrowers [according to figures from the CML] sitting on a tracker mortgage may assume that their repayments will now fall, but this will entirely depend on whether their deal will apply the full 0.25% cut – some deals, such as those with Shawbrook Bank, have a collar of 0.50%."

Tracker deals could become even cheaper

With interest rates set to stay low, tracker deals could become more attractive to borrowers. While fixed rates offer the certainty of guaranteed payments, tracker deals could offer lower rates and many don't charge early repayment charges, making them useful if you need flexibility.

In addition, the economic uncertainty following Brexit could make tracker deals even cheaper. Springall adds: "It needs to be said that there is a probable path for the base rate to fall further still, as the market braces itself for many months of uncertainty.

"Therefore, switching to a tracker mortgage could reap many rewards as customers see their repayments fall. However, borrowers must always check the full details on their offer and, if they are unsure on what type of deal to pick, seek out independent financial advice."


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