Demand for tracker mortgages in the UK has risen as concerns mount over the cost of fixed-rate deals, though some brokers warn that trackers are a gamble.
Mortgage brokers have reported a sharp increase in the number of people taking out tracker home loans, which follow the bank base rate up or down, as rates on new fixed deals continue to rise.
The average rate on a five-year fixed mortgage with a loan-to-value ratio of 75 per cent hit 4.98 per cent in September, according to Bank of England data released this week, the highest level in three years.
Market analysts and traders expect the BoE to raise interest rates four times by the end of July 2027, with the first quarter-point rise coming as soon as November.
Although a rising base rate would push trackers up, brokers say that they could still be cheaper than many fixed-rate deals.
“We’ve seen interest [in trackers] nearly treble since the beginning of the year,” said David Hollingworth of broker London & Country. “It’s almost going back to the trend of the mini-Budget period,” he said, referring to the period when rates on fixed deals shot up as interest rates rocketed.
Ray Boulger, senior mortgage technical manager at John Charcol, said that in the first few months of the year about 8 per cent of customers opted for trackers, but that share is now more than 20 per cent.
He added that a tracker with a rate of more than 4 per cent will still be cheaper than many five-year fixes on the market today, allowing for a potential one percentage point increase by the middle of next year.
Andrew Montlake, chief executive of mortgage broker Coreco, said: “We are definitely seeing more borrowers ask about trackers again, mainly because fixed rates have moved higher and some trackers now look relatively attractive on price.
“The appeal is flexibility. Borrowers can benefit if the bank rate eventually falls and many tracker products have lower or no early repayment charges, which can make them useful for people who do not want to lock themselves in at today’s fixed rates.”
However, Montlake explained that trackers are “not a free bet”, as there is always a risk that macroeconomic conditions change and further rate increases are on the cards.
He added: “For the right borrower, a tracker can be a sensible tactical option, but it should be chosen because the flexibility suits their circumstances, not simply because they are gambling on rates coming down.”
Although fixed rates are rising, they remain below the peak reached in mid-2023. Many lenders told the FT that borrowers’ arrears had remained stable.
The UK’s mortgage charter, introduced in 2023, was designed to ensure that lenders support homeowners struggling with higher mortgage rates.