For a considerable number of mortgage holders the term ‘tracker mortgage’ has been the gift that just kept on giving. The ECB having last increased their base rate some 11 years ago now.
Most people who took out a tracker mortgage are probably repaying their loan at an average interest rate of 0.75% and may have taken out a mortgage between 2004 – 2006 so quite probably have a little over 15 years to go before the loan is repaid in full (if we assume the average mortgage term was 30-35 years). If they borrowed at 90% finance or ‘loan to value’ as the banks like to call it then its very likely that the same loan is now close to or less than 50% of the value of their property.
During this time and despite the uncertainty certain market events brought; anyone who was fortunate enough to opt for a tracker mortgage has had an exceptionally smooth financial journey. However; the landscape is about to change.
Energy prices are up, as are food prices and inflationary pressures across the Eurozone have necessitated the announcement of the first ECB rate increase to take effect in July.
But what does all this mean for tracker mortgages? Add it all up and its possible that the same mortgage may end up costing 1.50 – 1.75% before the end of 2022 according to several experts.
But could it rise further beyond this? The answer is that nobody can know for sure but is that a risk you would want to take particularly as you approach the latter years of your mortgage? Certain lenders have produced innovative solutions in the last 12 months where you can lock in your repayments via a 10, 15 or even a 20 year fixed rate mortgage. The benefit of having built up considerable equity in your property should guarantee you the most competitive option.
The interest rates can be as low as 2.40% and when you look at where interest rates are forecast to go before the end of 2022 this starts to look like a sensible premium to pay now to have that peace of mind and certainty of repayments.
Taking out the tracker rate may have been the best financial decision you ever made. As you consider your options from here; it is vitally important that you get independent financial advice so that your next mortgage decision is just as successful.
Get in touch with a member of the Mortgage Plan team and we can advise.
