Editor's note: This brief was summarised by The Property AI Newsroom from a report by Guardian Property. Read the original article for full details.

Tracker Mortgages Gain Popularity Amid Uncertain Interest Rate Outlook

Tracker mortgages are seeing a resurgence in the UK as fixed-rate deals become more expensive. The uncertain outlook for interest rates is prompting more borrowers to consider tracker options, which move in line with the Bank of England base rate.

At current rates, tracker mortgages appear cheaper than fixed-rate deals, provided interest rates do not rise. According to Guardian Property, the broker L&C Mortgages reported that tracker mortgage applications in April were more than three times higher than in March. Fixed-rate mortgages have traditionally been favoured for their payment certainty and, until recently, lower rates. However, recent economic events, including the Iran war, have led to concerns about inflation and have pushed up the rates on new fixed mortgages.

As of the end of April, the Bank of England base rate remained at 3.75% following a cut in December. The Bank has indicated that the ongoing conflict could lead to higher inflation and potential rate rises later in the year, with a worst-case scenario of the base rate reaching about 5.25% by early 2027. However, there is also a possibility that rates could remain unchanged if the situation improves.

For those remortgaging, the cheapest two-year fixed rates were around 4.55%, while the lowest two-year tracker rates were about 3.96%. On a £250,000 repayment mortgage with 20 years remaining, this would mean the fixed-rate deal costs £78 more per month than the tracker. Even with two 0.25% base rate increases, the tracker would still be less expensive monthly than the fixed rate at these rates.

Many tracker mortgages do not have early repayment fees or product fees, allowing borrowers to switch to a fixed-rate deal later if rates become more favourable. However, fixed-rate mortgages offer protection against potential rate rises, while tracker rates will increase if the base rate goes up.

Letting agents and inventory clerks should be aware of these trends, as changes in mortgage preferences can impact landlord decisions and tenant affordability.