Tracker mortgages have increased in popularity over the past three years as borrowers seek more flexibility in uncertain times.
There has been a 67% surge in uptake of these deals since 2021, according to wealth manager Quilter which put in a Freedom of Information request to the Financial Conduct Authority (FCA) to discover more about changing borrower habits.
Tracker mortgages are deals with interest rates which track the Bank of England base rate. Whilst it means your interest rate can change during the term of your deal, these mortgages often don’t have early repayment charges. This makes them a flexible choice for borrowers who don’t want to fix their rate for a two or five-year stint.
According to Quilter numbers of trackers taken out rose from 118,818 in 2021 to 198,044 by the first quarter of 2024- this coincided with a time of economic uncertainty and fluctuating interest rates.
Indeed, Quilter’s analysis showed borrowers were particularly attracted to trackers with short-term incentives – such as two-year deals. Meanwhile, three and five-year trackers saw a decline.
This suggests people were using trackers when mortgage pricing was high but they were holding on to expectations of stable or falling interest rates in the near future.
Charlotte Nixon, mortgage expert at Quilter said: “The substantial increase in tracker mortgages, especially those with two-year incentivised rates, highlights a shift in borrower behaviour towards more flexible options and away from the popularity of fixed term mortgages.
“While shorter-term incentives can offer immediate financial benefits, it’s crucial for borrowers to consider the long-term implications and potential interest rate fluctuations. Similarly, they need to be mindful of any early repayment charges as what can seem good at the outset can quickly turn out to be less cost effective.
“You also must consider the emotional toll that a tracker mortgage might take on you. If you are prone to worrying about money, then you could find yourself getting overly fixated on the Bank of England base rate. The benefits of a tracker must be weighed against the security of knowing how much you will pay each month.
“For those considering tracker mortgages, it’s important to stay informed about market trends and seek professional advice to ensure that their mortgage choice aligns with their financial goals and risk tolerance.”
You can find out more about the pros and cons of trackers and variable rate mortgages in this feature.
