Some of the first people to feel the positive impact of today’s interest rate cut will be those on tracker mortgages.
Around 533,000 people currently have this type of mortgage, according to the latest UK Finance data.
Nationwide has already confirmed that homeowners with one of its tracker mortgages will see their rates automatically fall by 0.25% on 1 January.
This is because tracker rates are directly pegged to the base rate.
The payable rate on the lowest current tracker rates will dip below 4% for the first time since early February 2023.
Halifax currently offers a 2-year tracker at 0.11% above base rate, which will reduce to 3.86% from 4.11% after a quarter point cut, said David Hollingworth, associate director at the country’s biggest broker, L&C.
That will save a borrower with a £200,000, 25-year repayment mortgage almost £28 per month or more than £330 per year.
“Tracker rates have been gradually closing the gap on fixed rate options but are still behind the best of the fixes. However, with more base rate cuts expected next year, we will potentially see more borrowers wondering if following rates down could make for a better option in the longer run,” Hollingworth said.
“Trackers are also more likely to be free of any early repayment charge, which gives added flexibility.
“However, there are no guarantees that rates will continue to drop, and so borrowers need to have some ability to cope with rising payments if rates take a turn.”
What about fixed rates?
There will be no immediate change to borrowers’ payments for those already on a fixed rate but today’s cut is good news for those looking ahead to their next deal.
Fixed rates have already been falling in recent weeks and months as anticipation of lower interest rates has grown.
That looks set to continue, as easing inflation and a weaker labour market has seen rates that feed into fixed rate pricing falling further.
“Lenders are competing hard and there could be more scope for lenders to improve their rates in the new year when they will want to get off to a good start,” Hollingworth said.
“Although rates are already pricing in further Bank rate cuts next year, there’s still scope for market expectation to see rates drift down further.”
