Bank of England move takes rates to five-year high

Tracker mortgages still best value option, MoneyExpert.com says

The Bank of Englandís 0.25 per cent base rate rise announced today takes interest rates to their highest level since September 2001. Analysis from MoneyExpert.com shows tracker mortgages are likely to become more popular in the wake of the increase in the base rate to 5 per cent.

The independent website is urging homeowners whose cheap fixed rate deals have expired to take action before they feel the effects of rising standard mortgage rates. Average rates for fixed-rate mortgages are currently around 5.5 per cent compared with 5.3 per cent for tracker mortgages, MoneyExpert.com research* shows.

And rates are increasing ñ homeowners who picked a tracker in August this year got an average rate of 5.05 per cent, with those choosing fixed rates getting an average 5.18 per cent**. And MoneyExpert.com believes that the differential between fixed-rates and trackers is expected to continue the trend of borrowers picking mortgages which track the Bank of England base rate.

Sean Gardner, MoneyExpert.comís Chief Executive, said: ìThis is a bitter blow for homeowners in the run-up to Christmas and will cost around £15 a month for someone with an average mortgage of £90,000.

ìBase rates are now at their highest since September 2001 when the Bank cut rates to 4.75 per cent. Unfortunately now it looks like the next move could be up again.

ìHomeowners can still find good deals but they need to act. Currently average rates for trackers are priced below fixed-rates and they should continue to prove popular despite the increase.

ìThat said though anyone who wants certainty should still consider a fixed-rate deal. People who latched onto low fixed rate deals two or three years ago are likely to be badly affected by the rise unless they avoid defaulting onto a standard variable rate. That means going out there and actively changing your mortgage ñ not many people realise this.”

Figures show around 1.008 million borrowers have opted for fixed-rate mortgages this year ñ around 68 per cent of all loans. However average rates have edged up from 5 per cent in January to 5.18 per cent now. And the numbers opting for fixed rates has fallen since January when 73 per cent picked fixed-rates compared to around 60 per cent now.

By contrast the numbers opting for trackers has risen from 14 per cent in January to around 25 per cent now. Up to 265,000 borrowers have taken out trackers this year with the average rate staying around the 5.05 per cent mark.

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* Source: Defaqto Aequos Database

** Source: Council of Mortgage Lenders

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