The average two-year tracker mortgage deal has broken the 2% barrier for the first time since the Bank of England dropped its base rate to 0.25%.
Following the central bank’s decision to cut interest rates to the lowest level in 300 years, the tracker mortgage market has bounced back, according to figures released by Moneyfacts.co.uk.
Rachel Springall, finance expert at Moneyfacts.co.uk, said: “Slashing the bank base rate has led to an impressive increase in activity among lenders looking to offer new tracker deals to prospective borrowers.
“At the same time, trackers are reaching new lows, as are fixed rates. The average two-year fixed mortgage keeps edging further down, now at 2.47% versus 2.54% six months ago and 2.68% a year ago.
“Those 1.5 million borrowers sitting on a tracker mortgage may assume that their repayments will now fall, however 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 mortgages can be more appealing to borrowers looking for flexibility with their loan, with most lifetime trackers without an early redemption charge. These trackers charge reasonable rates of interest compared to Standard Variable Rate (SVR) deals, which on average charge 4.78%.
“Those taking out a two-year tracker deal based on the average rate of 1.96%, and assuming no further change to base rate, would find themselves £604.68 a year better off compared to the average two-year fixed mortgage today, and £3,598.44 better off than sitting on a SVR of 4.78%.
“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.”