BoE Rate Decision Deepens UK Mortgage Divide Between Fixed and Tracker Borrowers

The Bank of England's decision to maintain interest rates at 4% has intensified the divide in the UK mortgage market. While some borrowers are benefitting from falling fixed rates, others — particularly those on tracker deals or nearing the end of fixed terms — face significant payment increases.

Despite the rate hold announced on 6 November, major lenders have responded by slashing fixed mortgage rates. This has provided unexpected relief to new borrowers and those remortgaging, but millions on tracker deals or approaching the end of their fixed terms are experiencing a different reality.

Lenders Spark Price War With Aggressive Cuts

Leading lenders have launched a series of rate cuts, creating a fierce competitive environment. Barclays now offers a five-year fix at 4.01% with an £899 product fee, a reduction of 0.1 percentage points. HSBC has lowered rates across multiple loan-to-value tiers, while Santander has cut some three-year fixed rates by up to 0.36%.

Nationwide has also reduced rates to as low as 3.64% for select borrowers. The building society also decreased its standard variable rate (SVR) by 0.25 percentage points to 6.74%, effective from 1 September.

HSBC has enhanced borrowing capacity for Premier customers, raising the loan-to-income ratio to 6.5 times annual earnings for those with £100,000 in income or savings.

The Winners: New Borrowers Lock in Sub-4% Deals

First-time buyers and remortgagers are among those benefiting most from the ongoing rate cuts. According to Moneyfacts, average two-year fixed rates have fallen to 4.94% in early November — down from 5.39% a year earlier.

For example, a borrower taking out a £200,000 mortgage over 30 years at the current five-year fixed rate of 3.90% could pay around £950 a month. This is significantly lower than the £1,037 monthly payments at the average tracker rate of 4.60%.

Mortgage experts suggest this environment creates opportunities for savvy borrowers. 'Competition between lenders had been heating up before today, and the small print behind the Bank's decision could now ignite a fixed rate price war,' said Lorna Hopes of Smith & Pinching.

Payment Shock for Expiring Deals and Fixed-Rate Holders

UK Finance reports that approximately 1.6 million fixed-rate mortgages will expire in 2025, with a further 1.8 million set to end in 2026.

Homeowners coming off ultra-low rates from 2020 are facing the steepest increases. Those moving from a 2.59% five-year fix to today's 4.52% average will see their monthly payments jump by around £440 on a £200,000 mortgage.

Meanwhile, around 1.1 million households on standard variable rates (SVRs), which now average 7.27%, face the highest costs. These borrowers urgently need to remortgage to avoid paying significantly more.

Tracker Borrowers: Waiting for Relief

Homeowners on tracker mortgages, which follow the base rate directly, have not seen any payment relief from the Bank's rate hold. A £200,000 interest-only tracker mortgage would have saved around £2,500 annually if the rate had been cut to 3.75%.

However, these borrowers will need to wait until December's Bank of England meeting for potential relief, when policymakers will review inflation data and the impact of the Autumn Budget.

What Should Borrowers Do Now?

Mortgage advisers advise those on expensive SVRs or soon-to-expire deals to act quickly. With fixed rates continuing to decline despite the base rate hold, waiting could mean missing out on current advantageous deals.

For tracker mortgage holders, the outlook remains uncertain. Markets are pricing in further rate cuts, but the timing depends on inflation trends and the Budget's impact.

The divergence in the mortgage market highlights a crucial reality: in today's environment, the type of deal matters as much as the base rate itself. Borrowers must carefully consider their options to navigate this complex landscape effectively.