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How the variable rate mortgage made a comeback in 2022

Journalist: Rachel Mortimer, The Times

ended 19. December 2022

Writing a piece on how the variable rate mortgage made a comeback this year amid rising interest rates. 

Keen to hear from brokers on whether they saw a jump in the number of clients considering a tracker or SVR while they wait for rates to drop back again. Are there still significant savings to be made? 

Will it return to business as usual with clients favouring fixed-rate deals next year? 

11 responses from the Newspage community

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Gareth Davies
Director at South Coast Mortgage Services
We've absolutely seen an increase in clients considering variable deals compared to previous years, and it's essential for people to at least discuss them with their adviser now, when in reality, many probably never even contemplated them until recently. For those with the ability to take a little risk with their mortgage, there are some very good products to be had. Flexible tracker rates, with low initial fees and no early repayment charges, definitely warrant consideration at least. However, with all other costs around us still increasing, there are still many that will prefer to pay a premium for the peace of mind gained with a fixed product.

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Emma Jones
Managing Director at Whenthebanksaysno.co.uk
The majority of clients are opting for tracker or variable rates rather than a long-term fixed rate in the region of 5%. Advice has always been to only fix when rates are low to prevent you from tying into a high rate for too long and missing the opportunity for lower rates when they come available. 60% more clients took a variable rate in the last quarter of 2022 at our firm. If you remember those people that took base rate trackers in 2007 were saving a fortune after the 2008 recession whilst others were fixed in on rates 5%. When mortgage rates reduce, the race will be back on to secure the lowest fixed rate available when they are more affordable. Be careful to check exit fees on any tracker, capped or discount variable rate mortgages right now, as you may be penalised for leaving early if fixed rates reduce considerably.
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Justin Moy
Managing Director at EHF Mortgages
We experienced an increase in enquiries about discounted and tracker mortgages, as the headline rates made for good reading at the time. Once we spent time discussing the differences between fixed and variable rates, most of our clients did opt to wait for lower fixed rates - it's just what most feel comfortable with, knowing how much that monthly payment is. The variable rate options were always going to become more expensive as the base rate continued to increase, whilst fixed rates became cheaper. There is still some short-term saving to be made with the current variable deals, but the comfort of stable payments is still a firm favourite. Lenders may spend a bit more time and effort with their variable product ranges going forward, but their fixed rate offering must be a priority, and quickly for the start of 2023.
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Mike Staton
Director at Staton Mortgages
The majority of mortgages written within our business over the past quarter have been variable rate mortgages, as most of these mortgages were nearly half the price when compared to the like-for-like fixed rate. With fixed interest rates now falling well before the projected 6% base rate figure, we will see a lot of people who panicked and tied themselves into long-term fixed rates over 6%, losing out massively in either over-the-top monthly payments or ridiculous ERCs.
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Rowan Frayling
Managing Director at J Finance
I have certainly seen a rise in clients wishing to discuss variable rate mortgages. Trackers seem to have dropped in popularity given that the Base Rate has seen a number of hikes recently, but Discount Variable rates have become more popular due to the pricing differential relative to the fixed alternative, coupled with the lack of serious increases in SVRs, and clients wishing to benefit from this if it continues. A look back at the Base Rate changes and SVR changes from those offering discount rates makes for interesting reading. Still, a lot of clients seem to prefer the stability a fixed rate offers, even if it means paying more for now.
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Matthew Jackson
Director at Mint FS
Variable mortgages have always been risk / reward products. The issue has been that, with historically low interest rates, there was no real reward for taking these. That has flipped on its head in the past 6-8 weeks, with around 75% of all the mortgages we have submitted now on either tracker rates or discounted mortgage products. Particularly popular have been those lenders such as Barclays and Nationwide who offer a "Switch and Fix" facility, which allows clients to move to a fixed rate at any point during the product period without penalty. At the moment the typical saving compared to a fixed rate can be between 1% and 2%. It is this flexibility that appeals hugely in times of an uncertain economic outlook and I suspect we will see the demand for these products remain for the coming 12 months at least.
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Gary Boakes
Director at Verve Financial
Tracker and variable rates at first look are very appealing, however, the uptake from customers has been relatively low, namely 5%-10%. This has been due to the reduction in fixed rates recently and with the forecasts for the Bank of England base rate being anywhere from 3.75%-5.5% 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 drop over the next 4-6 months.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
For a brief moment, the variable rate mortgage had a new dawn, but its sunset may already be starting. Following the mini-budget, we saw the cost of fixed-rate mortgages rise sharply, which made variable rates around 2% cheaper than the equivalent fixed deal. Even accounting for some potential rate increases, it made the variable rate a very attractive option. The past few weeks have seen the cost of fixed rates falling again, though, and we've had two rate rises since the mini-Budget too, so the gap is getting smaller and smaller again; which means that more and more people will prefer the security of a fixed rate deal, even if it's marginally more expensive than the variable rate option.
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Alastair Hoyne
CEO, Finanze Capital at Finanze Capital
I've seen a jump in the number of clints considering a variable mortgage. In my last three years of being a broker, I had only arranged 1 non-fixed rate due to client preference but in the past 3 months I have been asked to investigate non-fixed options by over half of my clients. Many do still choose to take the fixed alternative, often this is due to the lenders' DSCR calculations meaning on the current market rent they cannot borrow their desired loan amount so instead choose to have the higher loan amount albeit on a higher fixed rate. Over the past decade or so, having a fixed rate has become such a norm that clients are anxious to choose anything else, worrying that choosing a variable might come back to bite them if rates continue to rise in the way we have seen over the latest quarter.
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Joshua Gerstler
Chartered Financial Planner at The Orchard Practice
The majority of our clients are currently opting for tracker/variable rates rather than fixed rates. The initial payments are lower than fixed rates and people do not want to be locked into fixed rates of 5% or 6%. They are preferring to have lower payments now, with the knowledge that these are likely to increase in the short-term and hopefully come back down again in the medium term.
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Elliot Cotterell
Director at Windsor Hill Mortgages and Cotterell & Cotterell Commercial Finance
Variable rates and especially tracker rates without early repayment charges have become very favourable in the current market. Last week we saw the base rate increase by 0.5% which was very much expected and didn't come as a surprise to any mortgage professional and yet we still see decreases in fixed rates and we are also still seeing tracker rates being at a lower payable rate than the fixed rates available. For the right client, these products are very much an option to save sizable amounts. Every single person either nearing the end of their deal or on a variable rate should keep a keen eye on changes in the market or retain regular communication with their broker or financial adviser.