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Is the tracker back in play if Bank rate hits a peak?

Journalist: George Nixon, The Times and The Sunday Times

ended 02. August 2023

Good afternoon,

Some mortgage brokers have reported a rebound in interest in tracker mortgage deals over the last few weeks, as there is speculation on the back of better-than-expected inflation data that Bank rate might be closing to peaking. The hope is there may only be one or two more rate rises in sight of the MPC.

Is this something you've seen at all, and would any of your clients be happy to speak to us for a story on this?

Thanks!

15 responses from the Newspage community

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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Most of our clients are opting for trackers. There’s a slight discount to fixed rates at present, and although another rise will make the monthly repayments more expensive our clients are expecting reductions over the term of the deal that would see significant monthly savings. I agree with this sentiment and would expect rates to start reducing towards the end of the year.
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Ranald Mitchell
Director at bad credit mortgage specialists Charwin Mortgages
Trackers and discounted rates are back in business. There has been increased interest in these from our customer base, especially when compared to shorter-term fixed rates. The margins between the two almost allow for a 1% addition on the base rate (6.25% being the likely peak) allowing for financial gains whilst the tracker rate catches up with the comparative fixed rate, but will also slide back down as rates ease up in 2024. Many are now seeing this as a win-win. Seems like a no-brainer to go variable near the peak of the market. HSBC as an example offer a tracker rate of 5.29% and a fixed at 6.14%. both 2 years, both have the same fees.
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Nicola Schutrups
Managing Director at The Mortgage Hut / William James Wealth Management
Increased media speculation about decreasing rates means we are seeing customers defer decisions on if to re-fix a mortgage rate.

There is increased optimism among consumers that rates will fall sharply, which is contrary to what the markets are pricing in currently of 3 or 4 more rate rises.

The risk for consumers waiting is that they may end up on a significantly higher rate if the MPC continues with its policy of raising interest rates to tackle the stubbornly high inflation we are currently experiencing.

Tracker mortgages are a great option for watch-and-wait customers who have a certain appetite to risk, however, inaction could be a costly mistake for most.

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Michelle Lawson
Director at Lawson Financial
I have submitted a few tracker applications of late. Yes, I think the Bank Base rate is close to reaching its peak and the difference in rates between fixed rates and tracker rates is tracker rates being circa 1-1.5% less. This would mean the Bank Base Rate would have to rise by this just for customers to break even. Then, if the rates decrease they won't benefit. I have some applications on products with no penalties and one of the biggest considerations is whether a lender allows a 'switch and fix' facility where you can change to a fixed rate without incurring any penalties.
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Stephen Perkins
Managing Director at Yellow Brick Mortgages
Trackers are definitely back on the menu, and for clients who are not completely maxed out on a budget, bearing in mind base rate is likely to increase another couple of times at least, could be a good option as they would benefit as rates reduce and stabilise. However, those that need to ensure their mortgage is within a set budget every month would still likely be more comfortable with a potentially more expensive, but less risky fixed rate.
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Rohit Kohli
Director at The Mortgage Stop
We've been talking trackers for several weeks now with clients as positive news builds confidence in buyers and sellers alike. We are at pains to make sure that clients understand what taking on a tracker could mean if rates continued to rise. When you then compare this risk to shorter-term fix rates (2 or 3 years) the difference in cost isn't quite enough to make selecting a tracker the default choice, especially while many of our clients don't have the income to absorb the risk of a tracker. But, we are seeing some clients, who have a risk appetite and disposable income to match, taking on trackers having fully understood the risk involved.
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Darryl Dhoffer
Founder at The Mortgage Geezer
Tracker Mortgages, could be a popular choice especially a 2yr Tracker with no ERC;s, but will be subject to client risk and appetite, and overall circumstances.
Safe to say, clients I am advising and writing business for, with historic 13-month continued Bank Of England base rate rises, are not totally on board with Tracker Deals just yet (why would you), but with potential slowing of Base Rate Rises, and dare I say it, the MPC pulling the handbrake on another base rate rise, in months to come, will I then see client appetite return.
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Kundan Bhaduri
Property Developer and Portfolio Landlord at The Kushman Group
We have looked at the tracker rates and wondered whether we should be fixing some of our mortgages on a tracker. Then you look at the lender's stress tests on these products and you think, 'Well you must be joking'.

While selecting a tracker product, remember the flexibility and benefits that trackers offer of a declining interest rate regime (which a lot of analysts predict will come through next year) is counteracted by the atrocious stress test rates of 9-10% that will apply to these mortgages.

Trackers by their very nature are not fixed at a specific interest rate, and therefore banks have to be more cautious in lending if interest rates climb upwards. That is why most lenders would apply a very high stress test before lending you the money. What that means is that the total borrowing is going to be lower than what you could have got on say, a 5-year fixed-rate product.

So choose wisely - do you want to play the interest rate roulette, or maximise your borrowing on a property?
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Steven Mather
Lawyer & Director at Steven Mather Solicitor
Getting a tracker mortgage in May 2008 was personally one of my better financial decisions; but only because I lucked out and the rates dropped to 0.5% a few months later. I kept overpaying and it helped reduce the capital more quickly. I cannot see the same happening in 2024. It is always a risk taking on a tracker and it should be only for those who can truly afford increases that should take the gamble.
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Ashley Thomas
Director at Magni Finance
A 2 year tracker would be a good option as it is likely that the base rate should reduce over the next couple of years. The risk is whether they will continue to rise beyond the next 3 - 6 months or if we are at the peak and they will start to reduce by the end of 2023. Where there is risk there is potential for reward, in this case you could significantly benefit if the base rate goes down quickly.
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Samuel Ewen
Managing Director at Rosehill Financial Services
As always, the fixed vs tracker rate debate is dependent on the individual. We've found tracker rates to be popular, however if you're considering any type of variable rate it's important to also look at what the monthly repayments would be if the rate were to increase. If this is still comfortably affordable, it might be a suitable option. It's also important to review the product conditions, particularly when it comes to early repayment charges. You'll find that some tracker rates have exit fees if you were to leave the product early, whereas others do not. If you're going to opt for a variable rate in this market, the flexibility of having no early repayment charges is a no-brainer in my opinion.
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Rob Gill
Managing Director at Altura Mortgage Finance
Tracker rates are becoming increasingly popular for a number of reasons. Firstly, the current rates are often cheaper than equivalent fixed rates, and have room to accommodate further base rate rises before they're more expensive. Secondly, they'll come down of course when the base rate does, which looks like an increasing possibility in 2024. Also, tracker rates are more likely to come with no early repayment charge, meaning borrowers can monitor rates throughout their deal and switch to a fixed rate without penalty.
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Joe Garner
Founder & Managing Director at Joe Garner Consulting
It would depend on the difference in rates. If the tracker starts at a higher rate then fixed deals any cut in interest rate would only start to see a saving on the tracker once it has caught up and overtaken the fixed alternative..

Are we likely to see rates cut by nearly 2% over a 2 or 3 year period? Maybe, however, with a general election likely in the short term perhaps a 2 year fix is the best bet right now.
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Joe Garner
Founder & Managing Director at Joe Garner Consulting
It would depend on the difference in rates. Trackers usually start at a higher rate than fixed deals so any cut in interest rate would have to catch up and overtake the fixed alternative to be worthwhile.

Are we likely to see rates cut by nearly 2% over a 2 or 3 year period? Maybe, however, with a general election likely in the short term perhaps a 2 year fix is the best bet right now.
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Gary Boakes
Director at Verve Financial
Tracker rates could well be a great option for people that are comfortable with the level of risk involved. It certainly does feel that we are nearing the peak of the mortgage rates and bank of england base rate, and with forecasts still looking at base rate dropping next year it could be a great money saving option. However, financial wellbeing is so important at the moment, we need to be explaining the risks and talking through the mental aspect of a tracker rate, not just the saving. If you are going to be worrying every 6 weeks about what is going to happen with your mortgage, then is the savings over the next 2 years worth it if it is going to affect your mental health, if that may even be the case then surely it isn't worth the risk.