The decision by the Bank of England to cut interest rates from 4.00% to 3.75% will be bringing some cheer to borrowers that may have given up on the chance of another reduction this year only a few months ago.
Tracker rates are directly pegged to base rate so will fall in line with base rate in due course.
The payable rate on the lowest current tracker rates will dip below 4% for the first time since early February 2023, before base rate was hiked from 3.50% to 4.00%.
Halifax currently offers a 2-year tracker at 0.11% above base rate which will reduce to 3.86% from 4.11% after a quarter point cut.
MORTGAGE SAVINGS
That will save a borrower with a £200,000 25-year repayment mortgage almost £28 per month or more than £330 per annum.
David Hollingworth, Associate Director at fee free mortgage broker L&C Mortgages, says: “Tracker rates have been gradually closing the gap on fixed rate options but are still behind the best of the fixes. However, with more base rate cuts expected next year we will potentially see more borrowers wondering if following rates down could make for a better option in the longer run.
“Trackers are also more likely to be free of any early repayment charge which gives added flexibility.
“However, there’s no guarantees that rates will continue to drop and so borrowers need to have some ability to cope with rising payments if rates take a turn.”
STANDARD VARIABLE RATES
Those on a lender’s SVR will typically be paying a higher rate than they could get on a new deal.
Lenders are not obliged to pass any base rate cut directly on to the SVR and as discounts are linked to SVRs, there’s no guarantee that they will fall or by as much as the rate cut.
However, lenders have typically edged their SVR down as interest rates have fallen. With SVRs often around or even exceeding 7% they rarely make for a good deal for borrowers.
FIXED RATES
There will be no immediate change to borrowers’ payments for those already on a fixed rate but there is good news for those looking ahead to their next deal.
Fixed rates have already been falling in recent weeks and months as anticipation of falling interest rates has grown.
That looks set to continue as easing inflation and a weaker labour market has seen market rates that feed into fixed rate pricing have fallen further.
“Fixed rates are now as low as they’ve been since the run up to the mini budget.”
L&C’s data tracking the best remortgage rates from the top ten lenders shows that fixed rates are now as low as they’ve been since the run up to the mini budget in September 2022.
Hollingworth adds: “Fixed rates have improved substantially and improved the choices for those still edging toward the end of an ultra-low 5-year fixed rate.
“Lenders are competing hard and there could be more scope for lenders to improve their rates in the new year when they will want to get off to a good start.
“Although rates are already pricing in further rate cuts next year, there’s still scope for market expectation to see rates drift down further. Borrowers are therefore even more likely to need advice to help them find the right option and keep track of a fast moving market.”
