
Tracker mortgages
“The analysis indicates that borrowers are particularly drawn to tracker mortgages with short-term incentives, such as two-year deals.”
IN RECENT YEARS, tracker mortgages have been prevalent among borrowers seeking greater flexibility during uncertain economic times. A recent analysis by Quilter reveals a 67% increase in the uptake of these mortgage deals since 2021. This data, derived from a Freedom of Information request to the Financial Conduct Authority (FCA), sheds light on shifting borrower habits and preferences.
UNDERSTANDING TRACKER MORTGAGES Tracker mortgages are unique because their interest rates are linked to the Bank of England base rate. This means the interest rate can fluctuate throughout the mortgage term, but these deals often come without early repayment charges. This flexibility appeals to borrowers who prefer to keep their rates private for a period of time, such as two or five years.
SHORT-TERM INCENTIVES AND BORROWER TRENDS The analysis indicates that borrowers are particularly drawn to tracker mortgages with short-term incentives, such as two-year deals. Conversely, interest in three—and five-year trackers has declined. This trend suggests that borrowers are leveraging trackers when mortgage pricing is high while anticipating stable or falling interest rates in the near future.
SHIFT FROM FIXED-TERM MORTGAGES The rise in tracker mortgages, especially those featuring two-year incentivised rates, “The analysis indicates that borrowers are particularly drawn to tracker mortgages with short-term incentives, such as two-year deals.” marks a shift away from the traditional popularity of fixed-term mortgages. While short-term incentives provide immediate financial benefits, borrowers must consider the long-term implications of potential interest rate fluctuations. Additionally, they should be aware of early repayment charges, as an initially attractive deal might prove less cost-effective in the long run.
FINANCIAL AND EMOTIONAL CONSIDERATIONS Opting for a tracker mortgage requires careful consideration of both financial and emotional factors. If a borrower tends to worry about financial matters, they might find themselves overly focused on changes in the Bank of England base rate. Choosing a tracker mortgage should balance the benefits of flexibility against the security of knowing the exact monthly repayment amount.