Surge in borrower demand for tracker mortgages

Clients are exploring their interest rate options now more than ever. For the past ten years, people have tended to opt for a fixed rate, knowing rates were low, but with all the uncertainty around mortgages right now, clients are becoming more open to a conversation on what is actually available and could work for them best. A lot of clients I speak to feel the recent rate rises are a short term issue, and so are not interested in locking in for five years at a time when fixed rates are so much higher. Whilst many customers have always wanted the security of knowing what their payment will be each month, because we have seen such a gap between fixed and tracker rates recently, we are now finding clients are more open to the risk of variable payments, even with the forecast of future rises.

I have seen more and more clients opting for tracker rate products, as they are priced far lower than the current fixed rates available with some at just 0.67% above the base rate. Even with the rise we had last week, this is still a very competitive rate that customers are happy to take the risk on to save hundreds of pounds per month compared to the fixed rate alternatives. Clearly, going down this route can be very risky for clients who are maximising their monthly budget as they run the risk of their mortgage payments increasing to an unaffordable level, but if you have a lot of disposable income it could be worth the risk of riding it out. Also, some tracker products are available with no early repayment charges so if the going gets tough, you could look to move to a fixed rate with no penalties for doing so. In short, you can have your cake and eat it with modern tracker mortgages.

Tracker mortgage products are definitely a popular option despite the fact more more rate rises are likely, as Bank Rate will need to rise a fair bit more for someone to have the same monthly cost as they would if they were on a fixed rate. This is especially the case given that some lenders are offering trackers without restrictions and limitations such as overpayments or repaying early. In the past few months, they've certainly been considered more, but the fixed rate mortgages are still the most popular as they provide all-important certainty. One particular deal on the market that is proving to be especially popular right now is the discounted variable rate mortgage. Scottish Building Society have had a market leading rate for a while. Discounted variable rate products are similar to trackers in the sense that it is variable, however they are linked to the lender's variable rate and not the Bank on England base rate. Though there is less flexibility than with tracker, the lower initial contractual payment is proving to be more popular.

The fixed rate mortgage has ruled supreme for many years now given how low rates have been. But thing are now starting to change. I would estimate that we are currently putting in 40%-50% more variable rates than before the major blip caused by the mini-Budget. Borrowers are more inclined to go for variable rates as they have been around 2% lower than the fixed rates and with some offering no Early Repayment Charges, they're almost a no brainer. Rates would need to rise significantly for a person to be in a bad position, and with little to no early repayment charge, they can jump onto a fixed at any time. Fixed rates will always have their place for budgeting, but variable rates have their place, too, and at the moment, they are benefiting buyers and remortgagers alike.

I would seriously consider a tracker mortgage now as the difference is significant, over 1.50% with some lenders compared to a fixed rate. We have had a lot of clients taking this up in the last couple of weeks. Although a risk if base rate continues to rise, it would have to go up by a large margin to be worse off. Then if it did increase by that amount, the difference in cost would depend on when it goes to that level. As a back up, you could choose a tracker rate with no early repayment charge and then change to a fixed if base rate continues to go up. If base rates come down next year, those who go on a tracker rate now could be much better off than fixing for a long period whilst rates are at a very high level compared to the past ten years.

Last week I spoke to a client and the difference in monthly repayments between a fixed rate and the currently lower tracker product was £600. Whilst there are no guarantees with these rates, and you don't get the security of knowing what you are going to be paying each month, for some people the right option will be to take the risk and ride out the storm. As we say though, 'different strokes for different folks' so it's very important to speak to an adviser who can recommend the right product for you rather than just do a fixed rate because that's what you've always done.

We are now arranging more tracker mortgages for clients than at any point I can remember in the past 10 years. These are appealing to the families we look after as rates are between 2% and 3% lower than fixed rate mortgages. People would prefer to benefit from the lower payments now, even with the expectation that these will go up over the next year or two in line with base rate. They do not want to lock into a high fixed rate as they believe that rates will not remain high for long. Most of the tracker rates we are arranging come with no Early Repayment Charges, so if rates do come down, they could switch to a fixed rate without incurring a penalty.

Trackers are becoming increasingly popular, despite the uncertainty of being on a variable rate mortgage. It's not surprising when they're currently about 2% cheaper than the equivalent fixed-rate deal, though the gap has got slightly smaller over the past week or two. Many tracker products come with either no early repayment charges or relatively low ones, so they offer some flexibility to exit early if needed.

Tracker mortgages might be the right option for some, but certainly not for everyone. At this moment in time they are certainly priced much lower than fixed rates and a huge benefit is that they tend to come with no early repayment charges so if the fixed rates were to fall below the tracker rate then it would be possible to switch without incurring an exit penalty. I've done a few trackers of late and on average I have saved my clients £350 on their monthly mortgage.

At the risk of showing my age, what we're seeing is a return to how the mortgage market operated pre-crash. Fixed rates would ordinarily carry a premium over their equivalent variable rate; it is only over the past few years that we have seen fixed rates at or around the same cost as tracker and discounted rates, meaning the vast bulk of mortgages written in the past decade have been fixed, with very little appetite for variable rate deals. The surge in fixed rate prices has changed all that recently, as these rates are carrying a very obvious premium for the security they offer, which is making people pause and at least consider variable rate options, even if they do ultimately select the safe harbour of a fixed rate.