Tracker mortgages, that go up and down with the base rate, are more affordable than either two- or five-year fixed-rate deals right now. But in the current economic environment, is it worth taking one out given the chance of rate hikes in future?
Tracker mortgages offer you a variable interest rate that is pegged towards the Bank of England base rate. Many lenders will offer you the bottom rate plus a set percentage.
The base rate rose twice in the past two years – once in November 2022, on the other hand in August 2022 – after staying at unprecedented lows for any decade.
So, in the event you still consider a tracker mortgage? Which? blogs about the best tracker deals with fixed-rate alternatives, and considers if and when the bottom rate might rise again.
How cheap are tracker mortgages?
Tracker mortgages have grown to be more costly in the past two years, but remain cheaper than either two-year or five-year fixed-rate deals.
The average rate for tracker mortgages happens to be a relatively modest 2.3%, based on Moneyfacts. In contrast, two-year fixed-rate deals average 2.52%, while five-year fixes average 2.94%.
As might be expected, tracker rates jumped after both base rate rises. However, fixed rates also increased, as lenders faced higher costs on their own borrowing.
Of course, if you’d chosen a two-year fixed-rate deal prior to the base rate started creeping up, you’d happen to be protected against these increases – whereas if you would chosen a tracker deal, you'd now be paying much more every month in your loan.
Cheapest mortgage deals
Averages don't always tell the entire story, especially given there are far more fixed-rate mortgages available on the market than tracker deals.
Which? looked at mortgages open to first-time buyers, remortgagers and home-movers to find the best rates of interest currently available over two and five years. (Keep in mind, though, that the deal you be eligible for a will depend on the size of your deposit as well as your affordability – and also you usually need a hefty deposit to access the lowest rates.)
Looking at two-year deals, the lowest tracker rates are less expensive than the lowest fixed interest rate.
However, the difference is minimal. Just one base rate increase of 0.25% might make the tracker deal more expensive.
| Deal type | Mortgage provider | Initial rate | APRC | Fees |
| Two year tracker | Leeds Building Society | 1.38% (BR + 0.63%) | 4.8% | lb999 |
| Two year fixed-rate | Leeds Building Society | 1.39% | 4.8% | lb1,999 |
If you'll need a five-year mortgage deal, on the other hand, trackers become distinctly less attractive.
The lowest five-year tracker rates are currently 2.14%. But you might take out a five-year fixed-rate mortgage just for 1.82% – and there is no risk of the payments increasing when the base rate rises again.
| Deal type | Mortgage provider | Initial rate | APRC | Fees |
| Five year tracker | Nationwide Building Society | 2.14% (BR + 1.39%) | 3.4% | lb999 |
| Five year fixed-rate | HSBC | 1.82% | 3.4% | lb1,499 |
Will the base rate rise again?
The base rate determines just how much the financial institution of England will charge lenders to borrow. Once the base rate rises, borrowing becomes more expensive and lenders reward you for saving; when it falls, lenders charge you less for loans (including mortgages) but provide you with lower savings interest.
For just below ten years, the base rate continues to be below 1%. In fact, between August 2022 and November 2022, it sat at a record low of 0.25%, and before that it have been unchanged for more than seven years at 0.5%.
Low-rate borrowing is just about the norm, so that many first-time home-buyers would struggle to imagine the 4% to 5% that was standard noisy . 2000s.
Some indications suggest the base rate is unlikely to alter much in coming months.
The Monetary Policy Committee (MPC), which sets the bottom rate each month, has said any changes will be 'gradual and of limited extent'.
At the same time frame, Brexit has cast uncertainty within the UK's economic future. At this time, the experts are finding it impossible to predict what's going to happen. In its last meeting, the MPC warned: 'The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be either in direction.’
So while Brexit looms within the UK’s markets, there are no guarantees of methods minute rates are prone to move.
Should I recieve a tracker mortgage deal?
A tracker mortgage deal may interest you if you're looking for a low-rate loan and aren't phased by a potential rate rise.
You'll need to carefully weigh up whether you can still afford your payments in case your interest rate went up by 1% or even more. Five-year tracker deals are specifically risky, as it's hard to say with any certainty how rates might relocate that time.
If you'd like more certainty over your interest rate, you may be best opting for a fixed-rate deal, especially given the instability caused by Brexit.
Then again, whenever you lock in to a fixed-period rate, lenders often charge early repayment fees if you sell the house or remove the loan prior to the end – just about all fixed-rate deals have these, however, many tracker deals do too.
So if you are planning to maneuver in coming years, an extended fixed-rate deal might not be right for you.
