Lowest ever tracker mortgage rates

Variable mortgage rates are still dropping - with some lenders offering sub-2% deals...

‘In limbo’ is an apt description of the current mortgage market for more than one reason.

Firstly, when you consider the full financial picture, buyers certainly aren’t in economic heaven – yet they’re not really in hell either. And secondly; while it’s still unclear how low rates will go, what you can guarantee is that they will head skywards at some point, just as soon as the base rate limbo pole is raised.

But that doesn’t mean you shouldn’t cash in while rates are still crawling along the floor...

All time low

Last month I reported that five-year fixed mortgage rates had plunged to their lowest level since records began. Well, guess what? So have tracker rates! And what’s more – thanks to the historically tiny base rate – they’re even cheaper than fixes.

According to Moneyfacts.co.uk the average rate for a two year variable mortgage now stands at just 3.27%. That’s a tenth of a percentage point lower than one month ago when Moneyfacts reported that rates across the market had dropped to the lowest level since their records began back in 1988.

 Lifetime tracker rates are also tantalisingly low with a current average of just 3.30%.

These miniscule rates reflect a general expectation that the Bank of England will not up the base rate anytime soon. This market feeling is driving down swap rates and the London Interbank Offer Rate (LIBOR) which in turn influences how much lenders shell out to finance your mortgage. And if they pay less, you pay less (or that’s the theory anyway).

So what are the best deals around at the moment?

Tumbling trackers

On the two year variable front, you’ll generally get the best deals if you’re able to cobble together at least a 30% deposit. Although on paper, the best deal is the Skipton’s 1.48% + base rate tracker – requiring a larger deposit of 40% - in fact, most will be better off looking at Chelsea’s 1.49% + base rate two year variable – a deal that allows you to buy with a 30% deposit. However both of these deals come with hefty fees. The Skipton mortgage charges £1995 while the Chelsea deal has an initial price tag of £1495.

If you fancy going for a variable mortgage which will track bank base rate for the entire length of the mortgage, rather than just an initial year or two, then you might prefer to go for a lifetime tracker. HSBC dominates the lifetime tracker market offering several different options on their deals and some competitive rates. Here’s a rundown of the lender’s current open market offering:

HSBC’s rates do seem more competitive at the high loan-to-value end of the market – in particular the 85% LTV lifetime tracker special, running at just 3.49% + base rate with a reasonable £199 fee.

However if you’re able to stump a large deposit, you’ll probably find better deals elsewhere. For example ING Direct is offering customers with a 40% deposit an initial lifetime tracker rate of 2.39% (1.89% + base rate). But again, with an initial price tag of £945, the fee level on this deal is certainly not small.

Discounted variables

The lowest variable rates currently floating around aren’t actually on lifetime or base rate tracker mortgages at all. Yes, it’s the discounted mortgage market that is dipping the lowest, offering sub-2% rates to customers with just a 30% deposit (see the table below for more details).

However these dirt-cheap discounted rates are not without their drawbacks. As your rate derives from the lender’s standard variable rate (SVR), you’re effectively placing your monthly outlay entirely in their hands, as they can alter the SVR at any point, irrespective of what happens to bank base rate. And it’s a fair bet that as swap rates start to ramp-up in the weeks before the base rate is hiked, it’ll be the SVRs and discounted variables that are upped first.

But then again, plumping for any form of variable mortgage in the current climate is always going to be something of a gamble...

Base rate rise

By their very nature, tracker mortgages are dependent on the base rate. But if you do opt for a variable deal, you should be keeping one eye on the Bank of England and the other on the fixed rate mortgage market, as when the base rate is eventually upped, you’ll want to be firmly locked into a fixed rate mortgage at a pre-hike rate.

In order to do this you’ll need to have a keen sense of when the base rate will move and lock in accordingly. Stick with your tracker for too long and you could find yourself dropped into a ghastly fixed term mortgage market that has been newly inflated by a hike in the base rate.

Indeed, it’s not hard to see why a majority of new borrowers are opting to lock in at a set rate for the long term – especially when the top five year fixed deals are hovering at sub-4% levels.

Really, the deal you ultimately go for should wholly depend on your own situation. If you can afford to opt for a tracker and shell out if your rate is upped by two or three percentage points (worst case scenario?), then cashing in on low variable rates could be a smooth move. But if you’re after the peace-of-mind of knowing how much you’ll need to put aside for your mortgage each month, then maybe you should ignore the low rates below, hold your nose and plump for a fixed deal.

12 tremendous trackers

Track or fix?

What would you do?

Let us know using the comment box below.

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