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‘Major increase’ in tracker take-up but they are ‘a gamble’ – analysis

  • 27/10/2022
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‘Major increase’ in tracker take-up but they are ‘a gamble’ – analysis
Brokers have reported an increase in interest in tracker and discounted tracker products as fixed rate pricing continues to climb following the fall-out from the mini Budget.

Brokers canvassed by Mortgage Solutions said that there had been more interest and take-up of tracker deals as they could often be half the price of their fixed rate equivalent.

Brokers also noted that some products were flexible as they had low or no early repayment charges, so could suit certain customers.

However, the individual’s financial circumstances should be integrated and those that are risk averse should be aware that this current pricing dynamic may change in light of rising interest rates.


Tracker product pricing and choice

According to recent figures from Moneyfacts, an average two-year tracker product is 3.69 per cent. This compares to 2.13 per cent in October last year and 3.33 per cent at the start of September this year.

The average two-year fixed rate is currently 6.5 per cent, which is up from 2.25 per cent in October last year.

There are 132 two-year tracker products on the market, as of yesterday. This has been steadily rebounding since the start of the month following the mini Budget when the product count fell to 94.

Moneyfacts added that the average Standard Variable Rate (SVR) or revert to rate is currently 5.63 per cent, but this would be updated in November.

Data from Twenty7Tec also shows that, overall, there are around 766 tracker products on the market currently.

Twenty7Tec figures also show that searches for tracker products have been growing over the past month, with a high of 20,403 tracker product searches recorded on 18 October. Searches have typically breached 14,000 a day every day of October barring eight days.

Last year in October, the high was 15,439 searches for tracker products.


‘Major increase’ in tracker and discounted trackers

Mike Staton, director at Staton Mortgages, said: “We have seen a major increase in the amount of tracker mortgages being taken out by clients, these clients are wanting flexibility at the moment ahead of stability.”

Tom Bradley, founder at Thomas Bradley Mortgage & Protection, agreed and said his business was “seeing a huge upturn in the take up of discount rate mortgages” as they are available at less than half the price of a fixed rate.

“These historically overlooked products offer great appeal and when explained [properly], the stigma of a variable rate is soon overcome, our clients have benefitted from learning about them and feel their finances will benefit from such arrangements,” Bradley noted.

Staton said that as tracker rates started from three per cent, it was “easy to see” the appeal but he said they are “not guaranteed to remain at that rate, so do come with an element of risk”.

He also warned against Money Saving Expert Martin Lewis’ advice last week which suggested “’tactically” going on the lender’s SVR as “you may find yourself sitting on your SVR on double the interest rate with the same penalty free get out clause”.

Bradley agreed and added: “The right thing is certainly not biding time on a variable rate, the suggestion of leaving your future financial position to chance and timing is frankly reckless and irresponsible.”


‘Other options certainly warrant a conversation’

Bob Singh, founder at Chess Mortgages, said that the margin between fixed rate deals and other products was high at around three per cent, and penalty-free tracker or discounted rate could work for certain clients.

He said that rates would have to rise to 5.25 per cent before clients “were any worse off” but the caveat is that they could be higher.

Singh continued: “Any savings made in that timescale could be clawed back but till then you will save on your monthly payments. Fixed rates still have their place in the market, but the other options certainly warrant a conversation.”

Gindy Mathoon, owner and mortgage broker at Create Finance, added that there was an assumption with discounted products that the lender would increase the SVR so the mortgage rate becomes more expensive.

However, he said that there were examples of building societies that haven’t increased their SVR in line with the base rate so discounted products “create some value”.


Trackers ‘are a gamble’

Graham Cox, director at Self-Employed Hub said that whilst pricing for an average two-year tracker was almost half of the equivalent fixed rate this could change quickly if interest rates go up as expected.

“They are a gamble, but because fixes are so expensive, they’re worth considering. The other benefit is they often don’t have early repayment charges, so you’ve got the flexibility to switch out if they become too expensive, he noted.

Staton added: “Do be careful though as not all trackers are penalty free and some come with tiny rules that if missed, could see you stuck with that lender for the long term.”

Gindy noted that the market could be expecting a three per cent increase in the base rate in the coming months, so if customers were risk averse then a fixed rate should be the first port of call.

He continued: “The role of an advisor has never been so important; all product offerings should be discussed with your client as they should be informed of all options available to them with advantages and disadvantages for each product type.

“For a number of years fixed rates have been incredibly low and therefore naturally at times we become transactional as the client would have a preference on a two or a five-year fixed rate. Now we’re finding clients are unsure what to do. Time to roll up the sleeves and spend a bit more time with your client.”

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