The vast majority of homeowners are on fixed rates but 629,000 are on tracker deals, which go up or down when the base rate does, whilst close to 700,000 are on standard variable rate (SVR) deals, which tend to fall but only at the discretion of the lender.
For example, a homeowner on the average standard variable rate could still be paying as much as £4,000 more per year than someone on a fixed deal, even after the Bank of England cut the base rate to 4.5 per cent.
Fixed rates rose above six per cent in 2022, following Liz Truss’ mini-Budget. Although they have since come down, the best deals are still hovering around the four per cent mark with many waiting for them to come down further.
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Read MoreImmediately before the base rate was cut on Thursday, the best tracker deal on the market for those with 25 per cent equity in their home was 4.90 per cent with a £1,499 fee from Halifax.
Someone opting for the fix on a £250,000 property would pay £1,022 per month, whereas someone on the tracker would be paying £1,058 per month even after Thursday’s cut. This equates to a difference of over £400 per year.
Some could be paying even more than the average rates, meaning their bills could be considerably higher.
The higher the bills, the less disposable income a household will have – something Keir Starmer has promised to improve under his Government.
‘I was paying more on a tracker – so now I’m fixing’
Imogen Hart, 40, opted to go on to a tracker mortgage in 2023 on expectations that the Bank of England would start to cut rates soon. Two years later she is now opting to move to a fixed deal from April, which will save her money.
Imogen, who works in PR, is currently paying £2,800 per month on her mortgage for her two-bed flat in West London, which she lives in with her partner and their son.
But she expects this to go down to around £2,700 when they fix.
Imogen Hart is switching to a fixed mortgageShe says: “We went on the tracker in April 2023 when the advice was that rates would soon start to go down.
“I definitely knew it was a gamble, and the rate changes have been a pain but not life changing, but I now see the value of the certainty.
“While I was on the tracker, it made me more interested in headlines on what was happening with the bank rate, and it will be nice to not have to worry about that as much.”
Since April 2023, the bank rate has risen from 4.25 per cent to 5.25 per cent and now gone back down to 4.5 per cent, so the family’s bills have fluctuated.
Once they go on to a tracker, they will be set for a two-year period.
What to do if you’re on a tracker or variable mortgage
David Hollingworth of L&C Mortgages said: “For those on SVRs it would be easy to feel comforted by a reduction but these are typically way higher than other deals and so are a costly place to be.
“With interest rates expected to cut, fixed rates have been markedly lower than tracker rates. That margin will close if the base rate does continue to come down but the questions over how far and how quickly the Bank will cut rates have persisted. In the meantime tracker borrowers will have a higher rate to contend with so could still end up being more costly over the deal period.”
“Many will opt for the security that a fixed rate brings and prefer to know what they have to pay, rather than fretting over where rates may head next,” he said.
This is because a lot of tracker deals do not include exit fees for those who opt to leave them early.
He added: “Many trackers have lower or no early repayment charges (ERCs), allowing borrowers to switch deals more freely if better options arise.”
The Bank of England base rate is currently 4.5 per cent after Thursday’s cut and financial traders are betting on around three more cuts this year.
If it appears that inflation is set to stay higher for longer, the Bank’s economists could opt to leave interest rates higher for longer, which would impact mortgage rates.
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