“We were in an extremely low rate environment for a long, long time,” says Belton at Legal & General, who notes how today’s rates are comparable to ones available when he first became a mortgage borrower.
“We’d just come off a period – that I missed fortunately – when rates went up to 15 per cent or so,” he says, with rates subsequently moving around the 4 to 6 per cent mark for many years.
“Where we’re actually getting back to is yes, they are higher rates but in the scheme of things, they are not high rates. They are more market median rates for where we’ve been used to.”
And while Belton predicts a smaller market this year for acquisition business, and lenders therefore competing on rates to meet lending targets, he still does not expect a “massive drop” in prices.
Will trackers become part of the new normal?
So with higher mortgage rates predicted to become standard, does this open the door for cheaper trackers to make a comeback among borrowers?
“Tracker mortgages will certainly become a more attractive option, especially if inflation does begin to ease and the Bank of England can scale back on raising interest rates,” says Parker at Just Mortgages.
“If the base rate does peak later in the year and start to come back down as many economists forecast, trackers will present a strong proposition to borrowers.”
But for risk-averse borrowers, Bhudia at Knight Frank Finance says fixed rate mortgages are the way to go. “By taking out a tracker, borrowers are trying to guess what the market is going to do.”
And with the cost of living crisis affecting many households, working within budgets is critical, says Karl Wilkinson, chief executive of Access Financial Services. “Many will want to know their monthly expenditure without exposing themselves to the risk of further rises in interest rates.”
Parker at Just Mortgages also highlights the benefit of certainty that a fixed rate can provide. “As homeowners look to manage every penny in the current climate, there’s still a lot to be said for the certainty of a fixed rate, even if it comes at a premium.
“While there will be those homeowners who fix and hate the thought of ‘losing money’ if rates drop, there will always be those who did their budgets, worked out what they can afford and are happy to see the same amount leave the account every month.”
