Fixed or tracker rate mortgage: which should you choose?

Tracker mortgages have not always been the most popular option for borrowers. In fact, until only recently they made up just 9% of mortgages taken out in the UK (according to a study by Mortgage Solutions). However, this has started to change, with the Bank of England’s decision to cut the base rate from 0.5% to 0.25% causing many to reconsider the best option on the market, as tracker mortgages now follow an all-time low base rate.

Meanwhile, fixed rates have continued to fall exponentially, with the average three year fixed rate for a 75% loan to value (LTV) mortgage just 2.1% in July 2016. Borrowers have undoubtedly been able to take advantage of the low rate environment over the past few months, but which is the best option: a fixed or tracker mortgage?

Does a fixed or tracker mortgage rate work best for you?

Many borrowers have been rushing to reap the benefits of the low rates available, often opting for a fixed product with the assumption that the base rate will start rising again in the near future.

However, it appears this is no longer as imminent a threat as many first thought, and evidence has shown that savvy borrowers have started favouring tracker mortgages more due to the potential to reduce monthly payments while the base rate sits so low. The overall margin between fixed and tracker rates has certainly lowered recently, offering a host of new opportunities in the market.

It is common knowledge that fixed rates are continuing to fall, with many even proving better value than tracker rates despite the base rate cut. Uncertainty is still rife in the market and fixed rates can be more beneficial for providing the peace of mind that even if the base rate were to suddenly change again, your mortgage would not be affected.

Fixed or tracker rates at Enness

There is still a large amount of speculation across the market right now, so it is important to be cautious when looking to maximise borrowing. Understanding the terms of your mortgage are paramount – as ever – so you can be sure of its exact period and criteria, thus avoiding the impact of a much higher standard variable rate once the term ends.

Despite this, we have seen no change at Enness in lenders’ willingness to lend as they continue to produce lucrative deals, especially for three and five year tracker rates and long term fixed rates.  Products like these allow borrowers the chance to favour long term stability yet still benefit from cheap prices, and ensure security no matter how the base rate moves.

Steven Boyde, Head of Residential Mortgages at Enness, described:

‘At the moment the margin between lenders’ tracker rates and fixed rates over a 2 year period is virtually non-existent. This is evidence that banks and economists see interest rates remaining very low for the short to medium future, which is good news for people looking to purchase.

However, for the more cautious applicant wishing to know exactly what they’ll be paying for the next two to ten years, there has never been a better time to fix.’

We’ve taken a look at the current lowest fixed and tracker rates currently available on the market:

• 2 year tracker rate at 1.29% (1.04% + base rate)
• 3 year tracker rate at 1.79% (1.54% + base rate)
• 3 year fixed rate at 1.54%
• 5 year fixed rate at 2.04%
• 10 year fixed rate at 2.69%

(based on a £500,000 residential purchase at 75% loan to value. All fixed rates mentioned are also available for purchase prices of £1 million).

With market uncertainty and changes to lending criteria to consider, it is more important than ever to engage with an expert broker to understand your options, where you can also gain access to a whole range of other specialist products suited to your current circumstances.

Seeking advice from one of our specialist brokers will ensure you avoid any hidden fees and weigh up the right solution for your requirements – no matter how complex it may be. Our brokers will secure the right product for you, providing expert advice and support throughout every stage of the mortgage process.