Average two-year tracker mortgage rate moving higher, website says

The average rate being offered on a two-year tracker mortgage has started edging upwards, despite interest rates remaining static for more than seven years, according to a financial website.

Tracker mortgages are a type of variable-rate mortgage that track the Bank of England base rate at a set margin. They are a potential alternative to fixed-rate mortgage deals, which guarantee borrowers will pay a fixed rate of interest on their home loan for a certain length of time.

While fixed-rate mortgages have the advantage of giving home owners certainty over how much their mortgage repayments will be, tracker deals can enable home owners to pay cheap rates of interest at times when the base rate is low, perhaps also giving them opportunities to over-pay their mortgage and cut down the overall size of their loan.

Moneyfacts.co.uk found that, while the Bank of England base rate has remained at a record low of 0.5% for more than seven years, the average two-year tracker deal on the market for borrowers across all deposit sizes has edged up to 2.04%, from 1.98% in November 2015.

The choice of variable tracker mortgages on the market has also fallen in recent months, from 381 in November 2015 to 313 now.

Charlotte Nelson, a finance expert at Moneyfacts.co.uk, said the recent upswing in tracker rates could be partly due to a declining appetite for this type of mortgage in favour of deals that offer borrowers more security.

She said: "Lenders have begun to focus more attention on the fixed-rate mortgage market, leading to declining tracker mortgage product numbers and fewer low-rate deals.

"Nevertheless, tracker mortgages do have advantages that could suit the right borrower. For instance, the majority of lifetime tracker mortgages have no early redemption charges, which gives borrowers a fair amount of flexibility."

Ms Nelson said tracker mortgages can also be cost-effective for shorter-term periods, for example, a borrower could be around £596 a year better off on an average two-year tracker deal compared with the average two-year fixed-rate deal on the market, based on someone having a £200,000 mortgage to pay off over a 25-year term.

She continued: "However, a tracker mortgage should not be taken out without consideration. A key question for any borrower when considering such a deal is whether or not they could handle a rate increase if the base rate were to rise.

"The timing of a base rate rise is still uncertain, but borrowers should ensure that they are prepared for this eventuality."