Lenders explore new ways to attract customers with low tracker rate
Tracker rate mortgages offer a variable rate that tracks another external rate, usually the base rate. At a time when a base rate increase later this year is almost a certainty, it is unusual to see that the two-year tracker rate has fallen for the third consecutive month.
This month, the average two-year tracker has fallen to just 1.92%, the lowest average two-year tracker rate since the base rate rise in November 2017. According to the Moneyfacts UK Mortgage Trends Treasury Report, the average two-year tracker has dropped by 0.2% on a monthly basis since March.
More tracker deals available
At the start of 2018, the number of two-year tracker deals available was 222, but this has risen markedly to 246 in June. For such a small market (in comparison to the fixed rate market), the new deals being offered are the driving force behind the significant rate drop.
It is likely that lenders are reviewing their tracker range to attract new customers since competition in the fixed rate market is fierce. Charlotte Nelson, finance expert at Moneyfacts, explains: “Since competition in the fixed rate market has reached new heights, providers have started considering the variable rate sector as a new avenue in which to attract borrowers.”
Considering a tracker rate?
Tracker rate mortgages are not expected to be in high demand with a looming base rate increase. However, the two-year tracker at 1.92% is significantly lower than the current average two-year fixed currently at 2.52%. This may be enough to convince some borrowers to choose a tracker over a fixed rate, most likely those with enough equity in their property to ensure they are not as affected by a rate rise should it happen.
If you are considering a tracker, some lenders offer a switch and fix feature. This means you can change to a fixed rate mortgage if rates go up, without paying an early repayment charge. If you are not risk averse, this could be the best way to take advantage of the low-cost trackers that are currently available.
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