A new era of trackers and discount rate products
The news and current geopolitics of the Middle East as well as imminent elections in two of the world’s leading democracies, may make one feel any further fall in interest rates is further off than we all think.
But analysts at least point to cuts in the second half of the year. UK markets are predicting the first interest rate cut from the Bank of England will come in September rather than August, with only one or possibly two cuts this year.
Life is what happens while you’re busy making other plans, as John Lennon SAID; but plan we must and if things go accordingly, we may yet see another change in the product mix available to brokers.
In its report, Twenty7tec cites the growth in the number of products available to the market in March this year but also the huge growth in search for 2-year fixes as brokers and their clients hedge their bets on interest rates. It’s a far cry from the popularity of 5-year fixed only a few months ago. Meanwhile, lenders have been issuing trackers and discounted rates in the expectation a market of rate cut is coming.
It’s a long time since many of us - if ever - will have seen such a market. There was a time not so long ago when the humble tracker mortgage was in plentiful supply. Back in 2009, roughly seven in ten new mortgages were sold on a variable-rate basis, according to Bank of England data. However, their popularity has plummeted since, with fewer than one in ten borrowers plumping for one since 2019 as a result of fixed rates having been so low in recent years. Quite simply it has been difficult to make the case for any other type of product.
Maintaining momentum
Nevertheless, there is plenty of colloquial evidence that consumers are beginning to question the wisdom of fixed rates when backing a tracker or discounted product may proffer better returns. Getting this right matters, because even on an average loan size of £200,000, a drop of 25 bps can mean savings over the life of the loan of thousands of pounds.
Not to mention the easing of pressure for those already struggling with payments as standard variable rates (SVRs) come down, too. The cost-of-living crisis may have abated in some respects, but it is still acutely felt in others. A rate cut might and probably should promote another whirlwind of remortgaging as affordability issues ease. The diet of regulatory updates on Consumer Duty and vulnerability will continue but lenders will breathe a sigh of relief if the cost of finance can play a part in easing the stress felt by many households.
If all things remain equal, we should see a rate cut in the second half of the year and this expectation will spur a significant increase in tracker and discounted products. In some cases, there is no product arrangement fee so savings are instant with many products also coming free of early repayment charges (ERCs), meaning borrowers can fix at any time if they want to.
Ultimately, some borrowers will be taking a calculated risk already on the fact a rate cut is coming, while others - especially those with a pending product maturity - will be waiting to see how rates change when the first interest rate cut is upon us, before plunging for another fixed rate.
Kathy Bowes
Intermediary Manager
Want to know more? Get in touch with our award winning team on 0345 601 2744, or send us an email at intermediary@cambridgebs.co.uk for more information.
