18-24s Twice as Likely to Choose a Tracker Mortgage
New studies have revealed that 18- to 24-year-olds are more than twice as likely to choose a tracker mortgage than older age groups. With the different mortgages available, knowing the difference between the options can help you to make smart financial decisions.
What is a Tracker Mortgage?
A tracker mortgage, otherwise known as a variable rate mortgage, is where the interest rate on what you pay back is linked to the Bank of England’s base rate. With a tracker mortgage your payments can increase or decrease each month. Therefore, if the Bank of England base rate is low, the amount you pay will be reduced as you won’t have as much interest to pay on top of your mortgage repayments. However, if the Bank of England base rate rises your payments will increase.
Depending on the type of deal your get the interest rate you pay will be the Bank of England base rate plus a certain percentage.
It’s also important to note that many tracker mortgages come with something called a ‘collar.’ This stops your repayments from dropping past a certain point even if the base rate drops.
Young People More Likely to Choose a Tracker Mortgage
With the recent rise in mortgage rates, many young people are facing expensive mortgage repayments. 18–24-year-olds are twice as likely to choose a tracker mortgage than any other age group.
23-34 years old are the least affected group as 4 out of 5 are on a fixed-rate deal. Those aged 55 or older are most likely to have a standard variable rate mortgage.
Many people currently on tracker mortgages are considering moving to a new deal to save money. However, some experts are predicting that the interest rate could decrease after peaking in 2023. Therefore, there is a chance that staying with a tracker mortgage could result in saving money in the long term. This is a risk many home owners are having to weigh up.
How Different Age Groups Utilise Tracker Mortgages
Uswitch.com surveyed over 2,000 UK homeowners investigating how homeowners from different age groups were utilising the potential of tracker mortgages.
Tracker mortgages are favored by 18-24 year old homeowners, with 17.82% choosing them, 13.67 percentage points more than 25-34 year olds. Additionally, 18-24 year olds prefer standard variable rate (SVR) and discounted mortgages, at 25.74% and 14.85% respectively. In contrast, fixed-rate mortgages are less popular among 18-24 year olds compared to other age groups, with only 41.58% opting for them.
Among 45–54-year-olds, 7.47% choose tracker mortgages, and 20.24% opt for SVRs. For those aged 55 or older, 6.56% go for tracker mortgages, but they are less likely to choose them than 45–54-year-olds, mainly due to a higher preference for standard variable rate mortgages (35.66%).
On average, 18–24-year-olds face the highest monthly mortgage payments at £1,390.90. This is 59% higher than the £874.35 paid by 25–34-year-olds, who have the second-highest payments. The gap widens with age, as those aged 55 and older make the lowest monthly payments, averaging just £763.79. This amount is 45% less than what 18–24-year-olds pay on average.
How to Pay Less When Apply for a New Mortgage?
When applying for a new mortgage there are several factors to consider to better manage your finances.
Firstly, it’s important to give your finances a health check. This involves getting a good credit history check. Having good credit history will significantly assist you in getting a good mortgage deal. Be sure to check your credit report, paying attention to any outstanding debts. Furthermore, make sure all information is correct on your credit check as mistakes can make it harder for you to get a loan.
Next, try to reduce spending large amounts of money. Not only does this help you save money for your deposit, but fewer outgoing payments can help your chances in being accepted for a loan. One way to cut back is by reviewing all your direct debits and standing orders and seeing if there is anywhere you can spend less.
Finally, it’s advised to apply for multiple mortgages with caution. This is because every time that you put in a new application, the lender carries out a credit check. Having multiple credit checks carried out can affect your credit score. Instead of applying to lots of mortgages, a mortgage broker can help you better understand what deals are right for you.
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All advice is correct at time of publication.