The rise and fall of tracker mortgage rates

The Bank of England has today announced that the bank base-rate will remain at 0.50% for the 28th consecutive month.

With the base-rate remaining at its historic low those seeking a mortgage face a real quandary: do they opt for a base-rate tracker mortgage in the hope that the base rate will not rise sharply or choose the certainty of a fixed rate mortgage, but pay a higher rate than is available in the tracker market?

Analysis by independent financial research company Defaqto has found that average margins, above the Bank of England base-rate, charged by base-rate tracker mortgages have risen sharply since the lowest margins were applied back in autumn 2007 - when a two year base-rate tracker was available at 1.01% below the base-rate for a mortgage up to 90% Loan-to-Value.

At the same time, however, since their peak, which occurred between September 2009 and February 2010, average rates for base-rate tracker mortgages have fallen.

David Black, Defaqto's Insight Analyst for Banking, said: "With the base-rate having remained at a half percent since for well over two years, those currently looking for a mortgage have a tricky decision to make: do they fix or opt for a tracker mortgage.  Those who took out base-rate tracker mortgages in late 2007 proved to have made a very astute financial decision and have enjoyed plummeting monthly repayments over the intervening period for the duration of their tracker.

"The base-rate can only go one way, but the question is when, by how much and how quickly - and this is the great unknown.  Unfortunately, those that make the wrong judgment are likely to find themselves significantly out of pocket.  Our analysis shows that while tracker margins have fallen since early 2010 they are still significantly higher than they were in 2007, before the credit-crunch - and this makes the decision-making process even more difficult for borrowers."