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Fall in demand pushes up tracker rates

The average cost of tracker mortgages is on the increase as the result of falling demand from borrowers, according to Moneyfacts.co.uk.

The company says that the cost of the typical tracker loan has increased by 0.06% since last November, despite there having been no change in the Bank of England base rate.

Charlotte Nelson at Moneyfacts.co.uk said: “The increase in the average rate of tracker mortgages is evidence that the link between base rate and mortgages has been broken – there has been no rise in the Bank of England base rate and yet the lowest two-year tracker mortgage rate on the market has risen from 1.04% to 1.28% in just six months.

“This could be due external economic threats, such as unemployment, wage increases and a decline in interest in this type of mortgage - the percentage of tracker mortgages taken up has fallen from 9% to 7% in just one year, which suggests that the appetite for this type of product has waned in favour of deals that boast greater security.

“As a result, lenders have begun to focus more attention on the fixed rate mortgage market, leading to declining tracker mortgage product numbers and fewer low-rate deals.”

Nelson added that tracker loans were still worth considering given that the majority have no early redemption charges. “This gives borrowers a fair amount of flexibility. This flexibility can also be achieved by sitting on a standard variable rate (SVR), but this could prove to be more costly; for instance, those who choose the average lifetime tracker mortgage would be £190.38 a month better off than if they were sitting on the average SVR of 4.81%.”

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