Borrowers are set to retreat from tracker mortgages following a quarter-point rise in the Bank of England's official interest rate. Trackers, which move in lockstep with the official rate, have seen increased demand recently as fixed rates surged on expectations of base rate hikes. However, with rates staying relatively cheap compared to fixed deals, the gap is now closing.
Matt Smith, mortgage expert at Rightmove, described the market as "dislocated," noting lenders priced in base rate rises for fixed mortgages that have not yet materialized. For a borrower with a £250,000 tracker mortgage over 25 years, the rise adds about £36 a month to repayments. Meanwhile, those on fixed rates will see no immediate change, as today's rates have already priced in concerns the base rate could hit 4.75 per cent within 18 months.
Despite the recent tracker trend, 87 per cent of UK home loans remain fixed-rate deals, compared to just 6 per cent for tracker products. Swap rates edged up slightly after the announcement but remain significantly lower than previous weeks, prompting rate cuts from Nationwide, Barclays and Halifax. However, those coming off a five-year fixed rate face significant payment shock, with average rates jumping from 1.3 per cent in 2021 to 5.16 per cent today.
With 2.3 million such deals set to expire in 2027, estate agents warn of a cautious housing market, urging realistic pricing amid economic uncertainty and high rates.
Source: Financial Times Companies · Summarized by HeadlinesBriefing