TRACKER mortgages are surging in popularity as rates for fixed deals rise due to conflict in the Middle East.
Up to 10% of mortgage applications this month were for trackers, according to figures from mortgage broker L&C shared with The Times.
This is the highest it has reached since October 2023 and up from about 6% in February, when the conflict first began.
Tracker mortgages, also known as variable rate tracker mortgages, are linked to the Bank of England (BoE) base rate, which is currently set at 3.75%.
It means that, unlike fixed-rate mortgages, your monthly payments can go up or down depending on the wider economy.
The BoE reviews the rate roughly eight times a year, meaning the rate can change this many times too.
A rise in popularity for the product comes as a number of fixed rate deals have been pulled from the market and rates have risen as a result of conflict in the Middle East.
Before the conflict began, markets expected mortgage rates to ease gradually during this year as inflation pressures eased and the Bank of England moved closer to cutting interest rates.
But the war has disrupted those expectations.
The trouble comes as hundreds of thousands of homeowners coming off historically low five-year fixes are now looking for a new deal before they are moved to a standard variable rate (SVR) mortgage.
These typically have much higher interest rates than fixed or tracker deals.
Today, someone looking to remortgage and move to another fixed deal, their cheapest option is likely Nationwide’s two-year fix at 4.90%, available at up to 60% loan-to-value (LTV).
That means someone with a 25-year £200,000 mortgage would make a payment of £1,157.56 a month on the Nationwide 4.90% deal.
But for someone looking to remortgage with a tracker, they could enjoy rates of just 3.96% if they moved on to a two-year deal with Halifax.
Homeowners with a 25-year £200,000 mortgage would make repayments of £1,051.26 a month with this offer.
While this is a significant saving, there are pros and cons you must consider.
“The risk [with trackers] is that borrowers are taking on more uncertainty,” Nicholas Mendes, mortgage technical manager at John Charcol said.
He explained: “If bank rates stays higher for longer, or reductions come through more slowly than markets expect, monthly payments stay higher too.”
Different types of mortgages
We break down all you need to know about mortgages and what categories they fall into.
A fixed rate mortgage provides an interest rate that remains the same for an agreed period such as two, five or even 10 years.
Your monthly repayments would remain the same for the whole deal period.
There are a few different types of variable mortgages and, as the name suggests, the rates can change.
A tracker mortgage sets your rate a certain percentage above or below an external benchmark.
This is usually the Bank of England base rate or a bank may have its figure.
If the base rate rises, so will your mortgage but if it drops then your monthly repayments will be reduced.
A standard variable rate (SVR) is a default rate offered by banks. You usually revert to this at the end of a fixed deal term, unless you get a new one.
SVRs are generally higher than other types of mortgage, so if you’re on one then you’re likely to be paying more than you need to.
Variable rate mortgages often don’t have exit fees while a fixed rate could do.
“That is the trade off, because unlike a fixed rate, there is no certainty over what payments will look like from one period to the next.”
With that in mind, Nicholas said a tracker deal may “suit someone with enough room in their budget, who is comfortable with payments moving around and wants flexibility”.
Meanwhile, he said a fixed rate would still suit borrowers “who want stability and the reassurance of knowing exactly what they will pay each month”.
To secure the best rates, you should start looking for deals three to six months in advance.
Alice Haines, personal finance expert at Bestinvest, said for those who are unsure, the most sensible course of action is to “consult a reputable, independent mortgage broker”.
These professionals can set out the “available options and help borrowers navigate their choices against an exceptionally uncertain economic backdrop”.
