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As fixes fall, is it time for a tracker?

ended 08. February 2023

Despite the fact that lenders have this week gone sub-4% on 5-year fixed rates, one Newspage broker has suggested that this means it’s time for a tracker, as the banks are clearly pricing in base rate cuts in the short to medium term. We asked brokers for their views.

14 responses from the Newspage community

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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
The price war for 5-year fixes is now in full swing. It’s like lenders know something the Bank of England doesn’t. Despite 2-year fixes remaining high, lenders seem to be reducing rates all the time for 5-year fixes. This is because they can foresee the rate slashes coming during that period and know they will still make a profit with a lower fixed rate. It may be time to think like a bank and opt for a tracker.
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Chris Sykes
Technical Director and Senior Mortgage Adviser at Private Finance
It is very situational, as a lot of this comes down to exposure to risk. While predictions are the base rate will not go up much further, the key is that it could. Those taking trackers are of two mindsets: they either want to ride the base rate back down and expect it to reduce this year, or they are taking an early redemption charge-free tracker with the view of refinancing onto a fixed. If wanting to fix later in the year, it's very important a client understands the costs of refinancing, whether a remortgage or a product transfer, such as solicitors' costs, valuation fees and mortgage exit fees.
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Craig Fish
Director at Lodestone Mortgages
It's been the time for a tracker for a while now, but while these aren't suitable for everyone, everyone should listen to an experienced broker and at least give them some consideration. Lenders are focusing their attention on mid-term fixes to try and entice some business in what is going to be a flat market but the public shouldn't fall for this as they will end up paying over the odds. In the words of Bachman Turner Overdrive, 'you ain't seen nothin yet', and we can expect more falls, so hold your nerve as the best is yet to come.
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Justin Moy
Managing Director at EHF Mortgages
I think we have to be mindful that products should be aligned with clients' needs, and not necessarily try to play (or beat) the market conditions. Some will be happy with a fluctuating rate, others need the stability of a fixed deal. What is important is to engage with a qualified mortgage broker to make sure you get the right advice, and understand all the options available to you.
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Emma Jones
Managing Director at Whenthebanksaysno.co.uk
Taking a tracker may mean short-term pain with higher rates but the opportunity to take advantage of low rates if the base rate falls. The lower pricing is indicating a reduction in rates later this year, so consider both options and have reserves just in case.
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Katy Eatenton
Mortgage & Protection Specialist at Eatenton Finance
If there is the risk appetite for it, I am advising clients to opt for a tracker rate with no ERCs in the current climate. We do not know when or where the fixed rates will stop, so while lenders are rushing to offer the lowest rates, it's better to wait it out until they reach a level clients are comfortable fixing at. However, this will not be the right advice for everyone, as some people will want the security of a fixed rate. Of course, many products can still be changed with most lenders up until exchange/completion so if rates continue to drop they could still benefit from a lower rate than originally anticipated.
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Jamie Lennox
Director at Dimora Mortgages
For the right person, trackers offer a fantastic option. Not all, but many trackers now have no early repayment charges during the period of the deal. This gives borrowers a great opportunity to bide their time to see how much fixed rates continue to fall and gives them the ability to switch onto a fixed rate further down the line should they continue to fall. However, there are no guarantees with where rates will end up and it’s important for customers to factor in the lack of security around a tracker before deciding to go down this route.
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Ashley Thomas
Director at Magni Finance
A couple of months ago it was definitely worth considering a tracker as the difference between that and a fixed rate was around 2%. Now the fixed rates are in line with the trackers or lower in some cases, it makes it harder to decide. However, the likelihood is that the base rate will reduce over the next 2-5 years. Personally, I would go for a tracker rate as it stands.
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Graham Cox
Director at Bridging Hub
Base rate tracker mortgages could be a good bet if you're happy to take the risk. And it is a risk because it's possible inflation proves stubborn, and the base rate continues to go up. But at this point, that looks unlikely. As most trackers have no early repayment charges, you're not tied in and can easily switch if a better deal comes along.
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Austyn Johnson
Founder at Mortgages For Actors
Everyone who took up a tracker last year are going to be loving this. When we advised them it could go up, we also advised that it could go down and now, well, they are looking forward to winning when the rates come down. Looking at the Bank of England minutes, it looks like this will be the last rise and now they will start to ease back down again. Unless they do something silly again, which can't be ruled out.
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Luke Thompson
Director at PAB Wealth Management
Falling rates, especially in the past few weeks, have given a real indication of what lenders feel the Bank of England will be doing with the base rate in the medium term. With inflation potentially having peaked, there is a chance that towards the end of this year and beginning of next year the Bank of England may begin to reduce rates to get the economy moving. With this in mind, we have seen a big move towards tracker rates in recent weeks, as customers are of the belief that the majority of base rate rises have now behind us and are looking at how they may be able to save money in the future. Potential base rate decreases combined with a tracker rate mortgage give people a chance of paying less for their mortgage in the medium term, which may offer some relief from the cost of living crisis.
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Joe Stallard
Director and Advisor at House and Holiday Home Mortgages
Tracker and discounted rates have proven popular with clients over the past few months, primarily due to the general discrepancy between those rates and their fixed counterparts. Crucially, however, we must remember that advice, and therefore product and rate type, needs to be tailored to each and every client. There's no one-size fits all approach: each set of needs and ambitions needs to be carefully considered before presenting mortgage advice.
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Amit Patel
Adviser at Trinity Finance
Trackers are not suitable for everyone as payments can vary from month to month so ultimately it comes down to the risk appetite of the borrower. Trackers are cheaper than fixes at the moment and some products come with no early repayment charges so you could switch to a fixed-rate product when the rates fall below that of trackers.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
Do you really want to gamble with your family home? Why pay more now for a tracker, than you could get a fixed rate for? Even if the financial gods smile on you and base rate falls in, say, year three of the mortgage, that means you've paid more than you need to for three years. You then need the base rate to fall to a level that takes your tracker deal well below the fixed rate you passed up to claw back the money you have overpaid and then produce a saving that makes the whole thing worthwhile. All the time, you're carrying the risk that the Bank of England may not reduce rates to the level you need them to. It feels like a lot of stress and worry for what could, ultimately, be a very small saving or no saving at all.