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Fixed rate versus tracker

Journalist: Anna Sagar, Mortgage Solutions / Specialist Lending Solutions

ended 07. January 2023

Looking to speak to mortgage brokers about fixed rates versus tracker deals. 

Some lenders have been cutting some fixed rates this week by up to 1.3 per cent (TSB).

  1. Would you recommend a tracker over a fixed rate? Does fixed rate pricing need to come down further?
  2. What advice would you give to people on trackers? Or new borrowers weighing their options?
  3. Are you having customers be more proactive in reaching out and keeping an eye on rates?

11 responses from the Newspage community

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Editor
Riz Malik
Independent Financial Adviser at R3 Wealth
Given the Bank of England's prediction that inflation will fall dramatically over the next 24 months, as well as Rishi's recent pledge, there is a chance that you could be fixing near the top of the market if rates fall. Trackers and shorter-term fixed rates remain popular as a result. It will be interesting to see how many fixed-rate mortgages with terms of five years or longer are written this year.
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Craig Fish
Director at Lodestone Mortgages & Protection
I do a weekly rate watch for my clients to keep them up to speed on what is happening across the market, and this subject comes up a lot. We are still recommending that clients give serious consideration to tracker mortgages with no erc over fixed rates, though it depends on an individuals' circumstances. At the moment there is a difference of just under 1% in pricing in favor of tracker rates, and so depending on what the BOE does in coming months, this margin could reduce further making trackers less appealing. There is also the expectation that the BOE rate will reduce in the latter half of 2023, so trackers are worth serious consideration until fixed-rate pricing reduces much more significantly.
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Mike Staton
Director at Staton Mortgages
I have recommended more trackers over the last 6 months than I have Fixed, this was purely down to customer circumstances. Fixed rates are still much higher than trackers so trackers are an attractive option, I feel the base rate will increase by another 0.5 % which would still make the cheapest tracker a better option than the lowest-costing fixed rate. The biggest decrease in rates we have seen so far is on the 5-year fixed rates, my remortgage is due this April and under no circumstances would I be considering a 5-year fixed term for myself on these rates. I have seen an increase in existing clients calling me asking about rate changes, but as a good, pro-active broker, we are keeping them updated anyway. The best advice for anybody considering a tracker at the moment is to make sure you are comfortable knowing they can increase
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Benjamin Blyth
Director at Houz Mortgages
The question 'fixed rate vs tracker' ignores an important cohort of mortgage products - the discounted variable rate. Mostly offered by building societies, this gives greater protection against rate rises compared to a tracker. Of course it doesn't have the same protection as a fixed rate, but is priced lower!
We have seen many lenders change their SVR in the last few months, but most have applied lower increases than the BoE jumps, and at a slower pace. This makes the discounted variable rate an attractive one at present.

I have recommended these to several clients recently, who accept the risk of an increase but are attracted by the low initial rate compared to what fixing would cost. There are even some gems available in the market with no early repayment penalties - giving the flexibility to change with ease at any time.
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Kylie-Ann Gatecliffe
Director at KAG Financial
Whether clients opt for a fixed rate or tracker rate, is always based on their circumstances and what works for them. We are having more clients open to discussion around tracker rates, as for the last ten years fixed rates have been the favourite due to lower rates being offered. I believe fixed rates will come down further over the next few months. Clients that have a comfortable level of disposable income may benefit more from a tracker, as they can cope with the fluctuations. However there are still a lot of buyers that simply want to know exactly how much they are paying each month. Rates are definitely a hot topic though and we have more clients than ever contacting us for updates on how the market is looking.
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Austyn Johnson
Founder at Mortgages For Actors
With tracker mortgages currently well under the rate of a fixed and with little to no Early Repayment Charge, they are looking extremely good.
If a client is on one and the rates go down, they win. If the rates go up significantly, they can hop onto a fixed rate without, or with very little penalty.
We have written lots more tracker deals than previously due to this.
As long as borrowers just stay on the ball and watch their rates, they will keep on winning. Brokers need to be away of clients on variable rates and be ready to assist asap too.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
As with any element of personal financial planning, it all depends on the individual client. The reduction in fixed rates certainly means that there is less of a benefit to taking the risk of a variable rate deal; but, as an example, if you want the flexibility of being able to pay off as much of the mortgage as and when you like, then your most likely going to be looking at a variable rate. If we look back to the pre-credit crunch mortgage market, it was normal for fixed rates to carry a premium over the equivalent variable rate option. The smaller that premium becomes the more people will opt for the security of a fixed rate if all other factors are equal.
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Gareth Davies
Director at South Coast Mortgage Services
There is no blanket right or wrong answer, as always it is down to the client's attitude to risk and budget. Tracker products with low fees and no early repayment charges are certainly more attractive than they have been. BUT, they come with risk. The base rate is pretty much nailed on to increase from its current level, so the client needs to be aware and happy with the potential costs when it happens. The gap between fixed and tracker is reducing with each week, so fixed rates are once again looking more promising than 8-10 weeks ago. If you need that certainty and peace of mind that your costs are set in stone, then fixed is the answer. If you have the budget to take a little risk, then a flexible tracker may well work in your favour.
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Jonathan Burridge
Founding Adviser at We Are Money
Product recommendation is based upon the needs and attitudes of the client. Trackers have become viable as the market went through a period of instability. However, fixed rates are cooling off for sure and the interest-saving argument is not so clearly defined. In a fluctuating market that existed aside for the last 10 years trackers and discounts have a place and it is positive that they are being considered and discussed with more borrowers.
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Gary Boakes
Director at Verve Financial
With the BOE base rate forecasts a lot more encouraging than previously then tracker rates have to be a major talking point at every meeting. With the ability to switch and fix, No ERC's the risk has been reduced for the client.

With inflation forecaststs at 0.7% for 2024, this will inevitability mean the base rate will reduce, so could be a potential winner in the 2nd year of the trackers.

Every circumstance and customer is different, so the fixed v tracker rates argument for a lot of people will come down to whether you can sleep the week leading to the monetary policy committee meeting every 6 weeks and if that is going to affect your mental health then the fixed rate is for you.
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Ashley Thomas
Director at Magni Finance
With the large difference in cost, I would suggest a tracker for now. This may change in a few weeks if the fixed rates continue to reduce.