At current rates, trackers look much cheaper than fixed deals, provided interest rates do not rise. However, with some experts warning of potential rate increases later this year due to the Iran conflict, considering a tracker mortgage might seem counterintuitive. Yet, amid economic chaos, trackers—where the rate moves with the Bank of England base rate—could be a good bet for some borrowers.
The Shift in Popularity
Typically, UK borrowers prefer fixed-rate deals, but trackers are experiencing a mini-surge. L&C Mortgages reports that applications for trackers in April more than tripled compared to March. Nicholas Mendes of John Charcol notes, “They are back in the conversation.” Historically, fixed-rate mortgages offered payment certainty and lower rates, but the Iran war has altered this. Rising oil and gas prices have stoked inflation, pushing up swap rates that lenders use to price new fixed mortgages. Consequently, the best-buy fixed deals are now more expensive than the cheapest trackers.
Interest Rate Outlook
The Bank of England left the base rate at 3.75% in April, where it has been since December. However, it warned that the Iran conflict could force rate hikes later this year due to unavoidable higher inflation. In a worst-case scenario, the base rate might need to rise to about 5.25% by early 2027. Conversely, Governor Andrew Bailey suggested rates could remain unchanged if the war is resolved quickly. Many trackers have no early repayment fees, and some have no product fee, making them a flexible “holding position.” If fixed rates become cheaper later, borrowers can switch. If rates fall, trackers will follow.
Affordability Considerations
Mark Harris of SPF Private Clients advises, “Consider whether you can afford to be wrong. If rates rise, can you afford your mortgage? If not, a fixed rate offers peace of mind.” At present, the cheapest two-year fixes are around 4.55%, while two-year trackers are about 3.96%. On a £250,000 repayment mortgage over 20 years, the fixed rate costs £1,588 monthly versus £1,510 for the tracker—a £78 difference. Even with two base rate increases of 0.25% each, the tracker would still be cheaper. However, if the Bank’s worst-case scenario unfolds, the fixed rate protects you at 4.55%, while the tracker would rise to 5.46%.
Risk Tolerance
David Hollingworth of L&C Mortgages advises, “Think about your tolerance for risk and how well you could handle increases.” If you have a financial cushion, you might absorb a few rises. Mendes adds, “A tracker may suit borrowers with comfortable affordability, savings in reserve, and budget room for higher payments.” However, the war may also raise other living costs, so budget accordingly.
Flexibility vs. Fees
Trackers offer flexibility, often with no early repayment charges (ERCs). Mendes says, “Borrowers can sit on a lower rate and move to a fixed rate later if pricing improves.” In contrast, leaving a fixed rate early typically incurs a fee. Halifax and Nationwide are among lenders without ERCs on trackers, but some, like NatWest, do charge. However, arrangement fees, valuation fees, or legal costs can still apply. These fees are comparable to those on fixes, often around £900–£1,000. Some tracker deals from Nationwide, NatWest, and Barclays have no product fee, but interest rates may be slightly higher. For instance, Halifax’s 3.96% tracker carries a £1,499 fee for loans between £75,000 and £1m. Hollingworth warns that paying fees to enter a tracker and then again to switch to a fixed rate could erode benefits.
Remortgaging Strategy
If your mortgage deal is ending soon, you can reserve a new loan up to six months ahead under the government’s mortgage charter, though some lenders now offer only three-month windows. Reserving now means you’re not committed; you can switch to a lower rate later. Most product fees are paid on completion, so you won’t lose them upfront. If you don’t arrange a new deal, you’ll revert to the lender’s standard variable rate (SVR), which averages 7.13%—far higher than trackers. Harris suggests opting for a fee-free tracker from Nationwide at 4.69% with no ERCs, potentially saving nearly £300 monthly on a £200,000 mortgage over 25 years compared to the SVR. Only consider the SVR for very small or short-term mortgages.
