Homeowners scramble for alternatives in anticipation of future rate increases
Tracker mortgages have doubled in demand since last month’s mini budget, according to a report by the Telegraph.
Citing data from mortgage company Twenty7Tec, the Telegraph said searches for tracker mortgages grew by 115% in the week to October 17 compared to the week before the mini budget. The company also recorded 95,000 searches last week, up 13% from the week before.
“I have not seen this level of demand for variable rate deals since before the pandemic,” Simon Gammon, founder and managing partner of Knight Frank Finance, told the Telegraph.
According to the publication, monthly repayments for a tracker rate deal are currently £500 cheaper than a two-year fix with a £200,000 mortgage. This will likely increase in the coming months, with research consultancy Capital Economics forecasting the bank rate to jump a whole percentage point to 3.25% at the coming November 3 meeting. However, experts say homeowners still prefer it over being locked into long-term fixed-rate deals.
The average rate for a two-year fixed-rate mortgage has increased from 4.74% to 6.65% since the mini budget was announced in September 23, the Telegraph said, citing Moneyfacts. During the same period, the average rate for a two-year tracker mortgage only rose from 3.44% to 3.71%.
What makes the tracker mortgage a less attractive option is how it “will almost certainly get more expensive,” according to the Telegraph, since there is no limit to how high its rate could rise.
“The gap between the mortgages is shifting behaviour and increasing numbers are considering whether fixed money at that price makes financial sense,” Gammon said, explaining that buyers who commit to tracker deals tend to be those “at the top end of the market” who have enough wealth to withstand larger surges in mortgage rates.
Nathan Reilly, director of customer relationships at Twenty7Tec, cautions buyers do not want to be locked into long-term deals when experts predict interest rates will decline by late 2023.
“Not everyone wants to be tied into a five-year fixed-rate if rates go down again next year,” Reilly told the Telegraph.
