Should I Leave My Tracker Mortgage?, by Matt Stevens
The Bank of England (BoE) base rate currently sits at 5.25%, following 14 consecutive increases as an effort to tackle inflation. This steep rise in borrowing costs has been difficult for prospective homeowners looking to get onto the property ladder, but perhaps even more so for those on tracker mortgages.
Tracker mortgages are a type of variable rate mortgage which ‘track’ the BoE base rate and come with an additional set percentage. For instance, if your specific tracker deal is the base rate plus 1%, then your current payable rate is 6.25%.
Relative to the base rate being 3.5% in December 2022, this shows a substantial jump in the cost of monthly repayments for many throughout 2023. So, is now the right time to leave your tracker mortgage for a fixed rate deal? We’re here to provide you with the necessary details.
Fixed rate mortgage options
Variable rate mortgages, like tracker mortgages, are often attractive owing to the level of flexibility that they offer homeowners. Unlike fixed-rate mortgages, tracker mortgages allow homeowners to enjoy lower monthly repayments when the BoE base rate is low. Moreover, they usually don’t entail high early repayment charges (ERCs) if you decide to switch later down the line. Alongside this, they are almost certainly lower than what your lender’s standard variable rate (SVR) is.
However, when the base rate rises - as it has done recently - homeowners are faced with higher mortgage repayments. In today’s context, a lot of people are wondering whether it’s wise to now fix their mortgage so as to negate any further base rate increases. The answer to this depends on a few factors, including how fixed rate mortgage options compare, and how long someone has left of their mortgage term.
Followingly, Rightmove reports that the average 5-year fixed deal with an 85% LTV ratio currently has an interest rate of 5.58%. This would mark a significant decrease if you were on a tracker deal which entailed the base rate plus 1%. Additionally, considering that the market is presently pricing in further interest rate rises totalling to 0.25%, fixing your mortgage now would give you a degree of security over the cost of your monthly repayments. If you only had say 5 years left on your mortgage term, it could be financially prudent to fix your rate now.
Is now the right time to switch from a tracker to a fixed rate mortgage?
While it may be a good idea to switch your mortgage over from a tracker rate, this admittedly may only apply only to those who want stability and only have between 2-5 years of their existing deal left. On the other side of the spectrum, if your current deal has 20 years remaining, then you must think more for the long term.
As we mentioned, if the base rate eventually goes down and you’re on a tracker mortgage, then the cost of your monthly repayments will become a lot more manageable. Given that the BoE base rate has experienced no further increases since August, this may indicate that things are beginning to slow down. On the back of this, if inflation starts to dampen, then it’s likely that the BoE base rate will fall. Albeit, this matter is without certainty and central banks take into account a variety of economic aspects when setting interest rates..
Ultimately, whether now is the right time to switch from a tracker to a fixed rate mortgage depends entirely on your financial situation and risk tolerance. Therefore, it’s essential that you receive expert guidance from a mortgage broker before coming to such an important financial decision.
We at The Mortgage Genie have the knowledge and experience to fully assess your case and offer the most sound advice according to your situation. If you’re thinking of leaving your tracker mortgage, then be sure to get in touch with us at 01915809890 today and we’ll begin working on a tailored remortgage solution for you. And why not see how much you could borrow up to right now by using our mortgage calculator?