Tracker mortgages are now cheaper than fixed-rate deals as anticipation of the first Bank Rate cut in four years grows.
Around 1.5 million homeowners are currently on variable rates that follow the Bank of England’s 5.25pc rate, plus a set margin, but their uptake is predicted to grow.
Today marked the first time since November that the average two-year tracker dipped below the two-year fix, according to analysts Moneyfacts.
It now stands at 5.94pc while the two-year fix, which is the most popular option chosen by mortgage-holders, has edged up to 5.95pc.
David Hollingworth, of broker London and Country Mortgages, said: “Fixed rates have gone up a little bit as a result of markets thinking that maybe the Bank Rate will be a little higher than previously anticipated.
“They expect it to eventually be cut, but whether that will be in two weeks’ time is highly debatable.
“When it does drop, I believe that trackers will begin to play a much bigger part as there will be more borrowers thinking about the longer gain.
“There will be a dilemma about which way to go, either tracker or fixed. At the moment people are looking at fixed deals, but the margin will narrow and trackers will be more popular.”
Opinion on when the Bank of England will lower its interest rate is split, with a cut on June 20 potentially on the cards.
The European Central Bank has cut interest rates from their record highs of 4pc to 3.75pc at a meeting this afternoon.
A rate cut could impact the plan of action this side of the Channel, with the Bank of England poised to align closely with the ECB’s action.
But continued uncertainty over the future of the Bank Rate has caused the vast majority of homeowners to opt for fixed deals.
A spokesman for Santander, the UK’s fourth-largest mortgage lender, said: “We currently see around 10pc of customers who are remortgaging opting for a tracker product, this has remained fairly static and we have not seen any increases in recent weeks to report.
“Often customers will opt for a tracker to benefit from the increased flexibility, including no early repayment charges.”
Moneyfacts data shows there are 2,351 two-year fixed rate deals currently on the market, compared to 361 tracker deals.
Mr Hollingworth said the lower average for trackers is mostly down to the smaller share of deals on the market.
The cheapest tracker is the 5.35pc rate (Bank Rate plus 0.1pc) offered by Nationwide.
A mortgage-holder with £300,000 left on their 25-year home loan will be paying £1,815 a month based on the Nationwide deal.
Should the Bank Rate fall by 0.25pc in two weeks, the tracker rate would immediately follow suit and the monthly loan repayment bill will fall by £44 to £1,771.
Caitlyn Eastell, a spokesman for Moneyfacts, said: “Borrowers who are more comfortable with the risk associated with a variable-rate mortgage, such as a tracker, may be encouraged by today’s news, especially as inflation rates are heading closer to its target of 2pc.
“However, the cheapest fixed deals are still undercutting tracker rates. It is important that if borrowers are unsure which deal is best for them that they seek professional advice.”
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