Demand for trackers since mini-Budget

In the last month I have seen an increase in enquiries for tracker mortgages which has only just started to translate into uptake with a 20% increase on these products being recommended coming into December. I would expect this trend to continue into the New Year but if fixed rates continue to fall this may be a short term fix as opposed to a longer term trend given the base rate is forecast to increase again. I would expect the base rate to increase again this month potentially by another 0.5% which of course would equate to an immediate increase in payments for anyone on a variable rate product such as a tracker hence why I would expect enthusiasm for variable products to be short lived.

In recent weeks I have helped a number of clients across Leicestershire to understand the difference between a standard variable rate, a tracker and a discounted variable rate. The latter has become the most recommended variable rate and proven more popular than a tracker for various reasons, including the fact that lenders offering such rates have demonstrated that they do not always pass on Bank of England rate increases in full, and if they do they do it at a slower pace - so it can offer some protection. I expect the Bank of England to continue increasing rates in to 2023 and so buyers and remortgagers alike should exercise caution if taking a variable rate - it's important to know and understand the implication of much higher rates on your monthly payment if they do continue to rise. This can be a prospect too frightening for some, and so I still see the majority of people preferring a fixed rate, to know what they will be paying each month and helping them to budget through the cost of living crisis. 15% of residential mortgages I have recommended since September have been on a variable, whilst 85% a fixed rate. What has kept me busy has been regularly reviewing those existing fixed rate applications made - as it can take 2-3 months to complete a purchase or remortgage from the point of application, I've been sure to continue renegotiating with lenders on behalf of clients as fixed rates have dropped since their application was first made. Most recently saving a client a total of 0.90% off their initial application rate following 3 revisions - but as it's not automatically applied when lenders reduce rates, it's important to have a proactive broker on your side!

The recent dominance of variable rates in the mortgage market stands as a timely reminder of the value of good mortgage advice. Advantage FS has seen a quadrupling in quotes for variable rates being created on our systems. However we have only seen around a 10% increase in uptake. This is almost certainly because of the back to front nature of risk taking. Those who can afford to risk their payments rising are the ones who do (or arguably should) take variable rates. We typically see this in the form of high earners with lowly geared mortgages, borrowing on an interest only basis, with sufficient assets to do so. However this isn't the vast majority of mortgage borrowers who, needing a repayment mortgage and tighter affordability, ironically cannot afford for their rate to rise more than the fixed rates on offer. For most borrowers, whilst the tracker/fixed rate delta is harder to swallow than ever, fixed rates still remain an Important safety feature for those who need to be able to predict their outgoings.

Since the mini-budget and all that ensued the change in direction in people's thought process in relation to their mortgage could almost be compared to the kind of handbrake turn more associated with the Dukes of Hazard! Before - when approaching the end of their existing deals - it would have been rarer than a Scotland appearance at a World cup but in recent months I've seen 75% of my clients across Glasgow, Edinburgh, Inverclyde, Ayrshire and Lanarkshire either opt for a variable discounted deal or chosen to adopt a wait and see attitude and stay on their lenders standard variable rate without any tie-ins and often with that added bonus of historic discounts already in place. In general, whilst now very much a part of the advice conversations, those looking to purchase for the first or a subsequent times are still more inclined towards the stability of an initial fixed rate but significantly in most cases willing to take the generally higher 2 or 3 year deals so as to have the option to review rates and circumstances in the relative shorter term. Although the BofE rate is expected and likely to rise in the coming months, fixed rates from the lenders are rarely related and are in fact heading the other way and so I would not be surprised if the recent handbrake turn in sentiment was being activated again in the New Year but this time likely in the other direction.

The tracker rates at first look are very appealing, however, the uptake from customers has been relatively low 5-10%. This has been due to the reduction in the fixed rates recently and talks of another base rate increase in December have meant the difference in margin is not worth the risk for the majority of people, who are still worried about rising energy and food costs. The majority of lenders will allow you to change fixed rates during the purchase or remortgage, so buyers can still benefit if rates are to drop over the next 4-6 months. The biggest change has been customers wanting to take 2 year fixed rate products compared to earlier in the year when the majority were taking 5 year fixed rates. Remortgage customers especially those who have been used to lower rates are feeling very uncomfortable regarding tying themselves into a 5 year fixed rate with the market changing so quickly at the moment. Unfortunately, it does look like the base rate will rise another 0.5%, and until we start to see inflation level off or starting to drop this is the only weapon they have to use. However, I do feel that customers are certainly starting to feel the pinch and with talks of inflation peaking, hopefully, this will be the last increase for a while, and rates and the market can start to stabilise.

As a firm, we have not seen any uptake of any tracker products, despite highlighting, to our clients, the vast difference. Our clients wanted to avoid having a risk appetite and preferred to fix the mortgage for as long as five years. Since the Kamakazi budget in October, our clients had in their minds, that rates are only going up. Hence wanting to fix it for two to five years. Most of our clients are from Leicester, and of a South East Asian background. They want the peace of mind of knowing that their mortgage payments will not change. Especially with the increased living costs going into 2023. The Bank of England meet on 15th December and I expect them to raise the base rate by 0.5%. It could then remain the same for about three months, but nothing is guaranteed. However, when it comes to mortgage interest rates, this increase will have a reduced impact when compared to the previous increases we have seen. We have seen many mortgage interest rates reduced over the last few weeks. This could mean the mortgage market has already factored in this likely rate increase.

The demand for Tracker rates has increased no doubt. But whether this is sound advice for an individual all depends on their individual circumstances. It can be a short term fix for the crisis we are going through. I've seen a 40% increase in clients taking this option to help with the monthly budget. No Bank of England should not increase rates further, this is not the solution to our problems.