Tracker mortgage rates grow in popularity as borrowers look for lower monthly repayments

Tracker Mortgage Rates Grow in Popularity as Borrowers Look for Lower Monthly Repayments

Tracker mortgage rates have become much more popular as borrowers search for cheaper mortgage deals and hope the Bank of England base rate will fall.

New analysis from Stonebridge mortgage network shows the proportion of borrowers choosing tracker mortgages increased to 12% in April, up from 4.1% a year earlier. This means tracker mortgage popularity has almost tripled in 12 months.

At the same time, fewer borrowers are choosing fixed-rate mortgages. Stonebridge says the proportion of fixed-rate deals fell to 87.6%, compared with 95.4% a year earlier.

For many homeowners, fixed-rate mortgages are still the safest option because they provide certainty. But the growing demand for Bank of England tracker rates shows some borrowers are willing to accept more risk if it means they could benefit from lower monthly mortgage payments if interest rates fall. There are currently predictions that the base rate will increase multiple times this year to control inflation caused by the war in Iran. 

Are variable and tracker mortgages the same thing?

A tracker mortgage is a variable-rate mortgage that often follows the Bank of England base rate. The lender adds a set percentage above the base rate, and the borrower’s mortgage rate moves up or down when the base rate changes. Some lenders offer discounted standard variable rate mortgages that do not track the Bank of England base rate. 

Which lenders offer the cheapest tracker mortgage rates?

Some of the cheapest tracker mortgage rates have recently been available from lenders, including Barclays and Halifax.

Barclays has offered a two-year tracker mortgage at 0.21% above the current 3.75% Bank of England base rate for borrowers with a 25% deposit, a £999 product fee and no early repayment charges.

Halifax has offered a two-year tracker mortgage at 0.21% above the current 3.75% Bank of England base rate for borrowers with a 40% deposit, a £1,499 arrangement fee and no early repayment charges.

The lowest tracker mortgage for each borrower depends on the loan size, deposit, property value, income, credit profile and whether the borrower wants flexibility to switch later.

Why are borrowers choosing tracker mortgages?

Many borrowers are choosing tracker mortgages because they believe mortgage rates could fall. They also want the lower rates and cheaper monthly repayments available now. If the Bank of England cuts the base rate, tracker mortgage payments usually reduce.

Tracker rates can also appeal because some deals have no early repayment charges. This gives borrowers the option to move to a fixed-rate mortgage if they become worried about future rate rises or if fixed-rate pricing improves.

Tracker mortgages may suit borrowers who:

• Want a lower rate than many fixed-rate deals
• Expect interest rates to fall
• Have enough income to cope if payments rise
• Want flexibility to switch mortgage deals
• Have a larger deposit or more equity in their home

Are tracker mortgages risky?

Tracker mortgages can be risky because monthly payments are not fixed. If the Bank of England base rate rises, the borrower’s mortgage payments will also rise.

This is why tracker mortgages are often better suited to borrowers with strong affordability, good savings and a higher tolerance for risk. Borrowers with tight monthly budgets, smaller deposits or a need for payment certainty may prefer a fixed-rate mortgage.

Fixed rate mortgage vs tracker mortgage

A fixed-rate mortgage keeps monthly payments the same for a set period, usually two, three or five years. This gives borrowers certainty and protection if interest rates rise.

A tracker mortgage can move up or down with the Bank of England base rate. This can help borrowers save money if rates fall, but payments can increase if rates rise.

There is no single best option. The right mortgage depends on the borrower’s financial position, risk appetite and future plans.

Aaron Strutt, product director at Trinity Financial, says:

“Some of the cheapest tracker rates are currently undercutting fixed-rate mortgages, and the lack of early repayment charges on certain products is a big attraction. It gives borrowers flexibility if they want to switch to a fixed rate later.

“But tracker mortgages are not suitable for everyone. Borrowers need to be comfortable with the possibility that payments could rise. Clients with stretched affordability, smaller deposits or limited savings may be better suited to the certainty of a fixed-rate mortgage.

“The best approach is to compare tracker rates, fixed rates, product fees, early repayment charges and lender criteria before deciding. One of our brokers can help you understand which lenders are offering the most suitable mortgage rates for your circumstances.”

Should I choose a tracker mortgage now?

A tracker mortgage may be worth considering if you believe interest rates will fall, you want flexibility, and you can afford higher payments if the base rate rises. More lenders are offering fixed rates priced around 4.5% for borrowers able to put down a 40% deposit; many rates are more expensive. 

However, a fixed-rate mortgage may be more suitable if you want certainty, need to budget carefully or do not want to take interest-rate risk. Trinity Financial’s mortgage brokers compare tracker mortgage rates, fixed-rate mortgages and remortgage options from a wide range of banks, building societies, specialist lenders and private banks.

Speak to Trinity Financial about tracker mortgage rates

If you are buying a property, remortgaging or deciding between a fixed-rate mortgage and a tracker mortgage, Trinity Financial can help.

Our mortgage advisers can compare the latest mortgage rates, explain whether a tracker mortgage is suitable and help you secure a competitive deal.

Call Trinity Financial on 020 7016 0790 to secure a fixed or tracker rate mortgage, book a consultation, or use our appointment calendar

The information contained within was correct at the time of publication but is subject to change. It is for general information purposes and is not advice.

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