The short to medium outlook for rates is for them to remain at the current base rate of 0.25%. According to some estimates, this should cut the average lifetime tracker mortgage rate in the UK to around 2.3% going forwards. Fixed rates have also continued to fall, with the average three-year mortgage rate for a 75% loan-to-value mortgage falling to just 2.1% as of July.
Over the last few years, borrowers have taken advantage of the low interest rate environment by entering in to fixed rate mortgages based on the assumption that rates would eventually start to head upwards.
As that is no longer the case and the rate has done quite the opposite, the savvy borrower is now looking favourably at trackers with the option to further reduce the monthly payments and potentially save themselves some money.
However, we would advise erring on the side of caution for customers intending to maximise their borrowing. A fixed rate might still be a better option giving the borrowers peace of mind in case there is a reversal in fortunes in the bank base rate. In such uncertain times, it may be best to lock in to some certainty with a fixed rate mortgage.
Looking ahead, advisers must ensure customers understand the terms of the mortgage as some rates only apply for an initial period, and could hit them with a much higher revert rate. Others may include a collar or floor, meaning there’s a minimum rate the borrower will pay regardless of a reduction in the underlying rate the tracker is following.
With the fine print of mortgage products difficult to navigate and uncertainty reverberating through the market, it is more important than ever that advisers use a wide range of products and are not tempted to focus too closely on falling rates and tracker mortgages.
