Homeowners on ‘tracker’ mortgages in line to save £300 a month

Expected fall in Bank Rate to provide welcome boost for variable-rate borrowers

Mortgage borrowers on “tracker” deals could be saving around £300 a month by the end of the year once the Bank Rate finally begins to fall.
Around 1.5 million homeowners are currently on variable rates that follow the Bank of England’s 5.25pc rate, plus a set margin.
Due to continual Bank Rate rises between 2021 and August 2023, and its stubbornness ever since, those who gambled on tracker mortgages have long been waiting for a reprieve.
That relief looks set to come this summer, with analysts at Capital Economics forecasting the Bank Rate to drop for the first time in more than four years this June.
It expects the Bank of England’s Monetary Policy Committee to lower the rate by 0.25 percentage points at their meeting after next.
Paul Dales, chief UK economist at Capital Economics, said the Bank Rate will likely stand at 4pc by the end of this year, before dropping to 3pc in 2025.
“It’s what we think will most likely happen,” he said. “I can’t say the first drop will be in June with great confidence but that’s where we are at the moment.
“It’s then looking like we’ll be at 4pc by the end of the year.”
In January 2023, the last time the Bank Rate was that low, the average two-year tracker deal was 4.48pc, according to data firm Moneyfacts.
Currently, a mortgage-holder with £300,000 left on their 25-year home loan will be paying £1,959 a month based on the average tracker rate of 6.14pc.
Should the tracker rate drop to 4.48pc by the end of the year, the monthly loan repayment bill will fall by £295 to £1,664.
Mr Dales said: “When the Bank Rate drops, those on variable deals will get the benefit before anyone else, which will be very welcome as they’d have been feeling pain even more so than others.
“It’s always a bit of a gamble taking one on, but I’d have thought the share of trackers would definitely go up as the Bank Rate comes down. It’s pretty clear interest rates won’t be going up further so anyone who is feeling brave might go for one.”
David Hollingworth, of broker London and Country Mortgages, said the “fairly punchy” 4pc forecast for the end of the year would cause a shift in the market if it comes to fruition.
“As we see that start to seep through the market, more borrowers will start to go for trackers again,” he said.
“We’ll be back to that classic dilemma of ‘should I fix or should I track?’.
“We’re not seeing that at the moment as well over 90pc are still fixing, but trackers can be appealing as they offer the flexibility of mostly not having early repayment charges.”
Mr Hollingworth warns those on the lookout for trackers to be wary of “collared” terms and conditions. This is where the rate you pay will have a minimum threshold, for instance, if it were collared at 4pc and the Bank Rate fell to 3pc next year, you would still be paying 4pc.
“It’s definitely something to double check as you don’t want to take the risk of a rate going up but not having the benefit of it coming down,” he said.
As for fixed deals, the average two-year term is now 5.8pc and the average five-year deal is 5.38pc, according to Moneyfacts, down from nearly 7pc in July 2023.
The leading two-year fix for those remortgaging is 4.43pc from Progressive Building Society, while the top five-year fix is NatWest’s 4.18pc.
In comparison, the leading two-year tracker rate is 5.4pc from Barclays.
Experts believe we could see the leading fixed deals fall below 4pc in the coming weeks, with lenders slowly trickling down rates in anticipation of the predicted Bank Rate change in June.
Meanwhile, the number of mortgage approvals has reached its highest level since Liz Truss’s mini-Budget crisis sent the lending market into turmoil.
The number of mortgage approvals made to homebuyers increased from 56,100 in January to 60,400 in February, while remortgaging approvals also increased from 30,900 to 37,700, according to the latest Money and Credit report.
As for house prices, Nationwide data shows that values fell by 0.2pc between February and March, although they were up 1.6pc compared to the same month last year.
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