Time for tracker-rate mortgages?

With fixed-rate mortgages increasing in cost, and prospects of an interest rate cut receding, a top analyst asks if the time has come to move to tracker-rate mortgages.

Louise Cuming, head of mortgages at price comparison website moneysupermarket.com, points out that lenders have started increasing their fixed-rate deals, but over the next two years interest rates could well fall.

"To fix or not to fix? Many consumers will be asking themselves this question as lenders have been re-pricing their fixed rate deals," she said.

But despite rises in the cost of fixed-rate deals, there are still excellent propositions on the market, and there is little difference between the best two-year fixes and the top tracker rates.

"Consumers may be wondering if they should wait before ‘tying-in’. However, with a choice of great fixed rate deals under 4.5 per cent, I feel this is still a good time to take your pick. However, if fixed rates continue to get any higher, a tracker mortgage may be a better alternative," she added.

"The Bank of England is likely to hold-fire on a base rate change this year until inflationary pressure dies down so rather than wait for cheaper fixed deals, consumers would be better off shopping around now to find the best mortgage deal that suits their needs."

But uncertainty should not prevent people from acing fast to move away from expensive rates, she advises.

"While consumers are making their decision, they shouldn’t let their mortgage languish with the standard variable rate (SVR). Choosing a good fixed rate is always a better alternative as borrowers can make substantial savings by transferring out of their SVR.

"With the average SVR at 6.5 per cent, a borrower who opts for a 4.49 per cent fixed rate with Bank of Scotland, a borrower could save £2,997 a year on an interest only mortgage of £150,000."