Director details principal benefit of trackers over other options right now
The Bank of England has continued to increase the base rate at consecutive Monetary Policy Committee meetings in light of rising inflation.
As a result, the latest rise has put interest rates at 3%, up from the all-time low of 0.1% seen in March 2020. This has put a strain on fixed rate mortgage products, with many borrowers looking to alternate options in order to keep their costs as low as possible.
So why then would one company turn to lifetime trackers?
Benefits of trackers
In light of recent increases to fixed rate products, CHL Mortgages has launched new lifetime tracker products across its entire core and refurbishment product ranges.
Read more: CHL Mortgages unveils new lifetime tracker products
The lifetime tracker products are available up to a maximum of 70% loan-to-value (LTV), with a two-year Early Repayment Charge (ERC) of 3% in year one and 2% in year two. In addition, a 2% product fee applies across the range.
Ross Turrell (pictured), commercial director of CHL Mortgages, outlined that the principal benefit of tracker mortgages over other options currently centres around cashflow.
“For the first time since the Prudential Regulation Authority (PRA) brought in increased stress testing for buy-to-let back in 2017, variable rates are able to compete with five-year fixed rates with the rental calculation,” he said.
Turrell explained that with five-year fixed rates hitting the peak of the swap curve, variable rates offer a significantly lower initial mortgage payment, and despite being likely to rise to the level of the five-year fixed rate, he said they can currently offer landlords better cashflow.
This, he noted, is of particular use right now given the troubling economic climate with the cost-of-living crisis, as well as the impending deadline for landlords of 2025 for all newly rented properties to have achieved at least a ‘C’ Energy Performance Certificate (EPC) rating, and any existing tenancies having until 2028 to do the same.
What type of clients do trackers benefit?
Turrell outlined that trackers often offer short ERC periods, which means those looking for flexibility can benefit.
“Due to the nature of trackers’ rates, the lender does not need to offset against a swap and therefore they will generally have shorter ERC periods, typically two years,” Turrell said.
He added that this means landlords will be able to jump back into a fixed rate deal if interest rates become more suitable within this product type later down the line.
He also explained that for those landlords looking for certainty of payment, fixed rates will always be the desired option – however, he noted that a tracker with no or a short period of ERC, offers the best of both worlds.
Uptick in demand for trackers
CHL Mortgages has noted an increase in demand for variable mortgage products, particularly over the last few months.
Turrell said that the newly launched trackers cater for first-time landlords, portfolio landlords, limited companies, and limited liability partnerships (LLPs) covering a variety of buy-to-let investments, including houses in multiple occupation (HMOs) and multi-unit freehold blocks (MUFBs).
“Mortgage enquiries in the specialist buy-to-let market have seen a marked change in demand for variable rate and tracker products,” Turrell outlined.
He pointed toward data from Twenty7Tec, which revealed the volume of variable rate products rose to 52% of all enquiries as of October 23, compared to 6% as of September 25.
Meanwhile, the data also detailed that the volume of five-year fixed rates dropped from 72% to 35% over the same period.
“This trend is expected to continue until the Bank of England base rate increases to a level that brings variable rates closer to fixed rate offerings,” he said.
