One in three first-time buyers eyeing variable or tracker mortgages

Almost one in three first-time buyers were considering variable and tracker mortgages in July as higher fixed rates push homebuyers to rethink how they finance their first home, new Moneyfactscompare.co.uk analysis.

In July, 31.3% of first-time buyers (FTBs) researching mortgages on Moneyfactscompare.co.uk were considering variable or tracker mortgages, compared with just 9.5% in February.

The proportion had remained below 10% throughout the spring before climbing as fixed mortgage rates increased.

The Moneyfacts average new 90% loan-to-value (LTV) two-year fixed mortgage rate increased from 5.09% in February to 5.74% in July.

For an FTB borrowing £200,000 over a 25-year term, this means monthly repayments have increased from around £1,180 to £1,257. Despite rates easing back from their April peak, borrowers are still paying around £924 more per year than they would have been in February.

The average new two-year 90% LTV tracker rate stood at 4.80% in July, resulting in monthly repayments of around £1,146 on the same loan. A saving of around £111 per month, or more than £1,300 a year, compared with the average equivalent fixed-rate mortgage.

Adam French, Head of Consumer Finance at Moneyfactscompare.co.uk, said “The big jump in first-time buyers researching tracker mortgages reveals the pressure higher fixed rates are putting on the budgets of hopeful homebuyers. For many borrowers, saving more than £100 a month compared with a fixed-rate deal could make the difference between being able to buy a home or delaying their plans.

“Right now, many tracker mortgages look attractive because they are priced at around one percentage point above the Base Rate, making them noticeably cheaper than equivalent fixed-rate products. However, borrowers need to remember that today’s monthly payment is not guaranteed to last.

“Money markets are currently pricing in a couple of Base Rate hikes over the coming months. If those expectations prove correct, tracker mortgage repayments will rise too. Recent years have also shown how our volatile times can quickly move the outlook for interest rates, so anyone considering a variable mortgage needs to ensure they have enough room in their budget to cope with higher monthly repayments.

“While some borrowers may be prepared to accept that uncertainty in return for lower initial costs, others will value the security of knowing exactly what they’ll pay each month. The right choice ultimately depends on individual circumstances, but anyone stretching themselves to get onto the property ladder should carefully consider whether they can still afford their mortgage payments if interest rates move higher.”