Homeowners Swithcing From Tracker To Fixed Rates

According to reports there has been a consistent trend among new borrowers.

They are being found to be switching to tracker rate mortgage products, as borrowers respond to the mortgage price increases of around 0.6 per cent on fixed rates while there has been a cut of up to 0.3 per cent in many trackers.

Seventy-five per cent of borrowers from Mortgageforce, a leading mortgage broker, had been taking fixed rates this has fallen to only 64 per cent this week, according to the firm.

Switch to fixed

Tracker rate mortgages are set to the Bank of England's base rate, so when it rises, borrowers' repayments are higher. When it falls, such as it has done now, so does what borrowers pay back to their mortgage lender.

Katie Tucker, the technical manager for Mortgageforce said: "Next week will be as confusing for borrowers; whilst a borrower's choice between a fixed rate and a tracker is largely based on how they expect Bank rate to behave in the next few years, when the price difference between the two is this significant, it's difficult to resist the cheaper one.

She also added that: "A borrower with 20 per cent deposit considering Nationwide's new rates can have a two year fixed rate at 6.28 per cent, or a tracker at 5.23 per cent. That is a huge difference of 1.05 per cent, which makes a difference of £114 pure interest to the monthly payment on a typical £130,000 mortgage."

Everybody's changing

The mortgage providers Alliance and Leicester and Halifax have also cut their two year tracker rates by up to 0.3 per cent. This has taken place in an attempt to offset steep rise in tracker rates that is expected when the Bank of England begins to increase their base rate.

However, other mortgage providers have raised their fixed rate mortgage products such as Barclays. The bank appears to have the aim of enticing more customers into taking out fixed rates, which can be seen as a more stable option than a tracker rate.

A spokesman for Barclays said: "The cost of mortgage funding has been pushed up recently, with Barclays being one of only a handful of lenders still offering competitive mortgages.

"In light of our competitors moving their rates upwards in the last few days, we have seen a massive demand for our mortgages, and so in order to control the flow of business we have had to adjust our mortgage range in line with the marketplace."

Tucker went on to explain: "The lenders have to keep their split between customers on fixed">fixed rates and tracker rates even, to mitigate the risk of their own wholesale costs rising; so they price their fixed and tracker deals to attract attention accordingly."

Tucker concludes: "My advice to people arranging mortgages this week comes down to affordability: If you can afford the monthly payments on a fixed rate, but would not be able to afford more than that, a tracker would pose that risk, so consider the security of the fixed. These trackers may start low, but you must be sure that you could afford the payments if they did rise."

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