Tracker mortgages cheaper but beware of base rate rises

Tracker mortgages may currently seem cheap when compared with fixed rate mortgages but with base rate rises likely are they higher risk?

There have been some significant rises in fixed rate mortgage interest rates over the last few weeks.

As a result, tracker mortgages seem cheaper and quite tempting.

As moneysupermarket.com figures show, a borrower with a £300,000 mortgage would currently pay an average £100 a month more on a fixed rate mortgage compared with a tracker mortgage.

But, many experts are predicting base rate rises this year which will directly impact on tracker mortgages.

An increase of just 1% would reverse the situation and tracker mortgages would appear less attractive.

Head of mortgages at moneysupermarket.com, Louise Cuming, said ‘Anyone thinking about fixing must act quickly. Lenders are increasing rates on an almost daily basis and there is a strong feeling that we have now passed the bottom of the mortgage market.’

If rates were to increase by 2%, the payments on a £150,000 mortgage would rise by £76 and if they went back to the October 2008 level of 4.5%, the increase would be £260 per month.