Tracker mortgage rates drop below 1%: has become the time to gamble?

After two emergency cuts towards the Bank of England base rate in the space of eight days, home buyers and remortgagers can engage in a few of the lowest mortgage rates on record.

With the base rate falling to a historic low of 0.1%, it’s now possible to remove a tracker mortgage with a rate of below 1%, but there are some drawbacks you’ll need to consider first.

Here, Which? offers advice on the pros and cons of tracker deals and explain what’s happened to the mortgage market because the first emergency base rate cut a week ago.

• You will keep up to date on our latest coverage over on our coronavirus advice hub.

Tracker mortgage rates tumble

Tracker mortgages follow the Bank of England’s base rate plus a set percentage. Which means that when the base rate rises you’ll pay a higher rate, and when it goes down you’ll pay a lower rate.

Just prior to the first emergency base rate cut (from 0.75% to 0.25% on 11 March), the least expensive two-year tracker was costing 1.24% (the base rate of 0.75% plus 0.49%). It was open to buyers and remortgagers having a 40% deposit.

10 days on, it’s possible to have an equivalent two-year tracker having a rate of just 0.74% from HSBC or 0.79% from Barclays.

But ultra-cheap tracker deals like these might be short-lived as lenders aim to protect their profits.

The HSBC deal is placed to shut to new applicants on Monday and Nationwide has withdrawn its entire range of trackers.

Is the time to take out a tracker?

A mortgage rate of below 1% might sound very attractive, but there are several drawbacks to tracker deals.

First of all, they’re quite niche products. Currently, there are just around 300 trackers on the market from nearly 6,000 mortgage deals.

One of the most popular drawbacks is that trackers don’t offer any rate security, so you’ll be gambling on the base rate staying low, which might be a dangerous move.

The current base rate of just 0.1% has much more room to increase instead of down throughout the two-year deal period, so that your mortgage repayments will finish up much higher compared to what they started.

Another aspect to be familiar with is the fact that some of the cheapest deals include ‘collars’, which mean the speed you’ll pay can’t drop below the current level, even if the base rate falls.

With this in mind, trackers aren’t the right kind of mortgage for everybody.

If you’re considering tracking the bottom rate, it can benefit to obtain expert consultancy from a mortgage broker on whether these deals will be ideal for your circumstances.

Are fixed-rate mortgages falling in cost?

The majority of house buyers and remortgagers remove a 2 or five-year fixed-rate mortgage, so let’s take a look at what’s happening with these deals.

Fixed-rate mortgages were already priced quite inexpensively prior to the base rate first fell a week ago, having dropped on price steadily during 2021.

It’s perhaps no real surprise, then, the first base rate cut has already established little impact on this market.

Data from Moneyfacts shows that the average rates on two and five-year fixes fell by 0.02% within the week following the cut, to achieve their current amounts of 2.41% and a pair of.71% respectively.

We’ve analysed the least expensive introductory rates at four different loan-to-value levels and found that just one table-topping deal is different in cost, and that was just by 0.01%.

The interactive chart below shows the least expensive rates currently available on the market.

What’s happened to standard variable rates?

In the week following the first base rate cut, 14 major lenders passed on the saving to customers by lowering their standard variable rates (SVRs) by 0.5%.

Co-operative Bank, which has already handed down the 0.5% cut effective from April, has stated it would apply a further reduction of 0.15% to its SVR to mirror the second base rate cut from 1 May 2021.

This generosity hasn’t been shared by everyone, however. Data from Moneyfacts shows that the overall average standard variable rate fell by just 0.06% from 4.9% to 4.84%.

It’s too soon to say whether other lenders will pass on the 2nd base rate cut to customers, but we’ll keep our story on what the coronavirus method for your mortgage updated once we learn more.

Coronavirus and your mortgage

Earlier this week, the federal government announced a bundle of reforms designed to help homeowners, buy-to-let landlords and tenants who face financial struggles because of the impact of the coronavirus.

These included allowing borrowers to benefit from a three-month payment holiday on their mortgages, and preventing private or social landlords from starting evictions against tenants for three months.

You can find out more about these measures within our full story regarding how to get a loan payment holiday.