Mortgages  

Tracker products near parity with fixed rates following BoE hike

Tracker products near parity with fixed rates following BoE hike
 

Tracker mortgage rates have risen in line with yesterday’s base rate increase by the Bank of England, bringing tracker products near parity with fixed rate products.

Yesterday (December 15) the Bank of England increased interest rates by 0.5 percentage points to 3.5 per cent.

Following the announcement, mortgage lenders immediately began contacting brokers to inform them of what impact it would have on product ranges.

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After the Bank of England’s smaller-than-expected base rate hike at the beginning of last month, lenders began lowering their mortgage interest rates as confidence returned to the market and swap rates - a leading indicator for mortgage rates - began to settle.

Following yesterday’s increase, The Mortgage Works announced it will be increasing variable rate mortgages indexed to the base rate by 0.5 percentage points from February 1 next year.

Likewise, Nationwide told brokers that it will increase its tracker mortgage rate by 0.5 percentage points from February 1, as did Santander.

While Santander tracker products will increase by 0.5 percentage points from the beginning of February, customer payments will not increase until March.

Commenting on yesterday’s increase, Knight Frank managing partner, Simon Gammon said the hike was already largely baked into fixed-rate remortgages which remain elevated after the “mini” Budget.

According to Gammon, swap rates suggest we may even see some marginal cuts to mortgage rates through January.

"The cost of tracker products will continue to rise and are rapidly approaching parity with fixed rate products," Gammon said, noting that following yesterday’s decision the best trackers will be in the region of 4 per cent, while the best five year fixed products are around 4.6 per cent.

"With another interest rate decision on February 2, it could be as soon as early February that the two converge or come close.

"Many borrowers will continue to wait on trackers, betting that fixed rates will fall further, while others will opt to lock in a fixed rate product to get better visibility on their outgoings during what will be a difficult period from an economic perspective,” Gammon added.

Adrian Anderson, director of property finance specialists, Anderson Harris noted that yesterday’s rate increase will put further pressure on struggling households.

“This rise, with gas prices increasing further due to the cold snap, is piling misery on millions of homeowners on variable rate mortgages and other forms of debt. This coupled with wide ranging tax rises to come in April 2023 puts huge pressure on households already struggling with rising prices,” Anderson said.

Despite these concerns, Anderson did acknowledge that the size of the increase is down 0.25 percentage points from the last rise, which coupled with the lower inflation figures released earlier this week lead him to believe the rate might peak at a lower point than previously predicted.

He said: “We may be seeing the start of the end of the rate hike cycle with the market now pricing a terminal rate for base at 4.5 per cent, down from previous Armageddon predictions of 6-6.5 per cent post mini-budget.”