As the crisis in the Middle East continues to push mortgage rates up, tracker deals are emerging as the cheapest type of home loan on the market – but experts warn there are risks attached.
The cheapest tracker deal on the market is currently 3.94 per cent, from Nationwide. By comparison, for fixed deals, the cheapest on the open market is 4.01 per cent, from First Direct.
Tracker deals are typically far less popular than fixed equivalents yet offer more flexibility which can be valuable in a time when rates are volatile.
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Experts say more customers are set to consider getting this type of mortgage – which goes up or down in line with the Bank of England base rate – despite the recent rises in rates.
This is because trackers often come with exit clauses that allow people to away from them fee-free and so, in times of volatility, they can be an option if households are hoping that fixed rates will drop, and want to wait until they do to secure one.
However, this can be a gamble with experts warning that if you take one of these deals you could end up paying more.
The warning is particularly pertinent as, at its meeting this week, the Bank of England suggested inflation is set to be far higher than previously expected throughout 2026, which increases the chance of an interest rate hike.
What is happening to fixed mortgage rates?
Fixed mortgage rates have risen in recent weeks because the crisis in Iran has sent expectations of inflation higher.
This has meant swap rates, which have a huge influence on fixed mortgage prices, have climbed too.
The average two-year mortgage fix has risen from 4.83 per cent at the start of March to 5.32 per cent on Thursday, according to Moneyfacts.
The top high street banks have all pulled their sub-4 per cent deals, except for Lloyds, which offers a 3.96 per cent two-year deal for those who large deposits, as long as they also have its Club Lloyds current account.
Are trackers becoming more popular?
Experts say a rise in the popularity of trackers is likely in the coming weeks.
Justin Moy, of EHF Mortgages, said: “The appeal of trackers is going to be heightened by brokers as they look at viable alternatives to spiralling fixed deals.
“They will look good value and many will offer low or no early repayment charges should the market return to some normality soon.”
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “Amid the turmoil we have seen to fixed mortgage rates, borrowers might feel it would be beneficial to take out a tracker mortgage moving forward.”
Nick Mendes, a broker at John Charcol brokers, added a “renewed interest” in trackers was likely.
What are the risks?
The key risk to customers opting for a tracker rate is that the Bank of England could increase the base rate, which would make your mortgage more expensive.
Taking a fixed deal ensures your price remains the same for a set period of time, while a rise to the base rate would send tracker rates upwards.
If you have a rate of 3.94 per cent on a £200,000 mortgage, a rise of just 0.25 percentage points would send your monthly costs from £1,049 a month to £1,077.
At its latest meeting on Thursday, the Bank of England indicated future rate rises were a possibility.
“Since the [Iran] conflict may yield a sustained inflation shock, I see the balance between inflation and activity to have shifted away from considering a cut towards considering a longer hold, or even a hike at some point to lean against inflation persistence,” said Catherine Mann, a Bank of England economist.
Experts warn that a chance of a rise to the base rate may make trackers less attractive.
“The forward outlook is now far less certain than it looked only a couple of weeks ago. While a tracker might appear attractive if the headline rate is cheaper today, the timing and scale of any Bank Rate reductions now look much less clear,” explains Mendes.
Aaron Strutt, of Trinity Financial, added: “If you are looking from an optimistic position, then hopefully the war in Middle East will calm down soon and fixed rates will be available below 4 per cent again.
“From the other angle, if this drags on the Bank of England’s Monetary Policy Committee will no doubt be raising the base rate to manage the threat of inflation. If this happens once or twice, then trackers will suddenly look a lot less attractive.”
Strutt said if you were getting a tracker, you should ensure it does not contain any early repayment charges, so you can later move to a fixed deal if you want to.