Articles > Have Tracker Rates Seen Their Day?

The two main options when it comes to selecting the type of interest rate you want are of course fixed rates and tracker rates. Fixed rates are when you choose an interest rate for a mortgage and it stays exactly the same for a set period of time; typically 2 to 3 years. A tracker, by contrast, will fluctuate in line with the Bank of England rate.

Over the past few months, with interest rates falling at unprecedented levels, more people than ever have been opting for tracker rates, hoping to cash in on further rate cuts.

But have trackers now become unviable for new mortgage applicants?

Depending on the amount of deposit (purchases) or equity (remortgages) you have, trackers have historically tracked the base rate at anything from Base minus .25% to Base plus 1%.

For example, if you took out a tracker at Base plus .89% a in the Spring, you would have at that time been paying 5.89%. With all of the drops in the Bank rate over the last few months, you would now be paying 2.39%, a substantial savings.

If you were to take out a tracker now, the headline rate would be about 4%, which is quite good, however, this would mean that you would be tracking the Base rate at Base plus 2.5%, which sounds far less competitive.

While rates are expected to continue to fall and remain low for the medium term, probably at least until autumn, it is impossible to predict what will happen after that.

Should the British economy begin to recover and inflationary pressures begin to rise again (not unimaginable if the economy experiences a post-recession rally), the Bank of England will then under pressure to raise rates as a means of preventing another bubble.

People who are on trackers that they have signed up to early this year could then very well be paying headline rates of  7% to 8% if the Bank rate returns to 5% or so.

Fixed rates are becoming much more affordable and will be likely to continue to do so once the Bank of England rate bottoms out and some confidence returns to the market. Late summer should see some of the best fixed rates in modern times.