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Fixed-rate vs tracker mortgages: which should you get?

Tracker deals getting more popular as fixed-rate mortgages grow in cost

Amid speculation that the Bank of England base rate may rise, fixed-rate mortgages are getting more expensive. So in the current market, are tracker deals a viable alternative?

New research shows that while fixed-rate deals still rule the roost, an increasing number of would-be homebuyers are searching for tracker mortgages, which vary in line with the base rate.

While a rate hike would be bad news for mortgage holders on these types of deals, are the offers on the market cheap enough to absorb such a change?

  • If you’re searching for a mortgage, you can get impartial, expert advice on your options by calling Which? Mortgage Advisers on 0800 197 84619.

Searches for tracker mortgages on the up

According to new data from Experian, the percentage of homebuyers searching for tracker mortgages rose to 15% in March, up from just 9% in February.

This means that while fixed-rate deals still remain considerably more popular (61% of searches), there are signs that some buyers are starting to look at other options.

With talk of an imminent Bank of England base rate hike, you might think now is a bad time to get a tracker deal. But in truth, all mortgage deals are affected one way or another by base rate changes.



What is a tracker mortgage?

Like fixed-rate deals, tracker mortgages generally offer an introductory period where they’re cheaper than standard variable rate mortgages.

As the name suggests, these mortgages ‘track’ the Bank of England base rate at a fixed margin.

Say you’ve got a deal at 1% plus the Bank of England base rate. The base rate is currently set at 0.5% – which means for your offer period, you’ll pay 1.5%.

If the base rate goes up, your mortgage cost will, too. But if it drops, you’ll get a cheaper deal.


Fixed-rate deals rising in cost

Some of the interest around tracker mortgages may be due to the rising cost of fixed-rate offers.

Fixed-rate mortgages have been getting progressively more expensive since the average two-year deal dropped to just 2.17% in September last year.

That figure is now up to 2.49% – and while there are still some competitive offers out there, buyers and home-movers are becoming tempted by deals elsewhere.

Fixed vs tracker mortgages

The table below shows the best deals available (by initial rate) in the two-year fixed and two-year tracker markets.

As you can see, at 75% and 85% loan-to-value (LTV), the best tracker deals currently outstrip their fixed-rate equivalents.

At 90% LTV, meanwhile, there’s nothing to choose between the best rates. But at 95%, there are far fewer deals available in the tracker market, meaning fixed-rates comfortably win out.

Two-year fixed-rate deals

LTV Lender Initial rate Revert rate Fees APRC
75% Monmouthshire* 1.35% 4.99% £1,149 4.5%
85% Atom Bank 1.54% 3.75% £900 3.5%
90% Yorkshire 1.79% 4.99% £1,495 4.6%
95% Marsden* 2.89% 5.95% £299 + 0.5% 5.6%

*Only available in England and Wales

Two-year tracker deals

LTV Lender Initial rate Revert rate Fees APRC
75%  HSBC 1.29% (base rate + 0.79%) 3.94% £899 3.6%
85%  HSBC 1.39% (base rate + 0.89%) 3.94% £899 3.6%
90%  HSBC 1.79% (base rate + 1.29%) 3.94% £899 3.7%
95%  Nationwide 3.64% (base rate + 3.14%) 3.99% £999 4.0%

Mortgage data from Moneyfacts, accessed 3 May 2018

The impact of a base rate increase

In theory, an increase of 0.25% in the Bank of England base rate would mean each of the tracker mortgages would be more expensive than their fixed-rate alternatives, at least by initial rate. This is shown in the table below:

LTV Lender Rate with a 0.25% base rate increase Revert rate Fees
75%  HSBC 1.54% 3.94% £899
85%  HSBC 1.64% 3.94% £899
90%  HSBC 2.04% 3.94% £899
95%  Nationwide 3.89% 3.99% £999


Fixed rate deals, by contrast, offer protection against rate rises by locking you into a rate for a set period of time.

But this doesn’t tell the whole story. If you start to look for a new fixed rate deal after the base rate rises, there’s no guarantee the best offers will still be available.

Indeed, Which? research found that 135 deals were withdrawn in December after the last base rate increase, with four of the 10 cheapest two-year fixed-rate mortgages disappearing.

Comparing mortgages

The mortgage market is always moving, meaning that it can be difficult to choose between the different types of mortgage – especially when a change in the base rate is anticipated, but not guaranteed.

Keep in mind that judging deals by initial rate alone can be dangerous, too.

While the rate gives you a good comparative measure of the deals available, you’ll also need to take into account any fees attached to the mortgage and weigh up other clauses, too – such as whether you’ll be allowed to make overpayments or repay your mortgage early without penalties.

Keep in mind that whichever deal you choose, you should make sure that you’ll be able to meet your repayments, both in your current financial situation, and if it were to change in future.

  • Finding the best mortgage deal can be a complicated process, but we’re to help. You can get impartial, expert advice on your options from Which? Mortgage Advisers – simply fill in the form below for a free call back.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

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