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Recent figures suggest that tracker mortgages have seen a huge uplift in popularity, with scores of homebuyers shunning the more common fixed-rate deals in favour of them.
Data obtained by wealth consultancy firm Quilter indicates that there has been a 67% increase in the number of trackers taken out over the last three years, with the number rising from 118,818 in 2021 to 198,044 in the first fiscal quarter of this year.
But why have trackers taken off lately, what's sustaining their popularity, and is now a good time to get out? We investigate in this blog post.
Why are trackers proving popular at the moment?
The figures unearthed by Quilter confirm that it is two-year tracker mortgages that have seen the biggest gains. Applications for them appear to have risen by 87% during the period in question, increasing from 86,212 in 2021 to 160,787 in Q1 of this year.
Three and five-year trackers, which are less common, saw decreased demand during the same period, while 10-year trackers had modest gains.
This suggests a growing number of mortgage borrowers are focused on the short term, and perhaps believe that interest rates will decrease significantly over the next couple of years.
There’s certainly logic to such predictions. Rates have steadily normalised since hitting a peak in late 2022 following the Conservative Government’s disastrous Mini-Budget, and continue to fall following signs of a rates war among lenders, amid falling swap rates.
Meanwhile, on 19th September, the Bank of England’s Monetary Policy Committee opted to hold its base rate at 5%, with industry commentators widely tipping them to reduce it in the near future. If this were to happen, the tracker mortgage rates tied to it would instantly drop.
Flexibility may also be a draw
Although it’s clear some homebuyers are choosing tracker mortgages in the hope that rates are about to drop, there is likely another reason they are proving popular: flexibility.
Tracker mortgages are far easier to exit without heft penalties compared to fixed-rate mortgages, so it could be the case that some see them as a short term stepping stone.
No doubt many believe that better mortgage deals will likely be available in the next 24 months, hence the rise in two-year deals, in particular. If mortgage rates were to come down within this timeframe, those on tracker agreements will likely find it easier to sever their existing deals and pursue more favourable ones.
Does this mean it’s a good time to take out a tracker mortgage?
According to our director and resident mortgage expert John Tarazi, tracker mortgages can be a good fit for certain types of borrowers right now.
“I think the Bank of England could well introduce a rates cut in November, so anyone who signs up for a tracker deal now is likely to see their rate fall in the next few months. Their flexibility will also be a big draw for some people too,” he explained.
“If you want to bide your time to see what rates will be doing in the long term, but avoid ending up on a costly SVR, a tracker mortgage could be an option to tide you over. You will certainly find it easier to exit in search of a new deal that you would on a fixed rate.”
While trackers are worth considering right now, you should consult with a mortgage broker before signing up for one. Our advisers can compare the latest tracker deals with current fixed rates and other alternatives across the market to ensure you choose the right option
