“SAVVY” borrowers are opting for cheaper tracker mortgages as rates remain high – ready to switch and lock in when they come down, brokers have revealed.
With mortgage rates rising quickly in the past six weeks due to the war in Iran, is there an alternative to locking in a rate now, if they are just going to come down in the coming weeks and months?
Brokers say there is – and that is going onto a tracker mortgage before switching onto a fixed rate when they come down again.
The key advantage of a tracker is that if the Bank of England cuts rates, your payments fall automatically, without you having to do anything.
The Iran war has caused mayhem in global markets and seen the price of oil skyrocket.
Oil prices had plunged yesterday after a ceasefire was announced, which included the reopening of the key Strait of Hormuz waterway.
But uncertainty over whether it will stay closed because of the Israeli strikes has renewed fears of a long-term energy crisis.
Brent crude oil rose 2% today to over $96.50 a barrel – underlying how fragile the ceasefire is.
Savvy borrowers are dodging long-term locks in hopes of a future dip
Darryl Dhoffer, Founder at Bedford-based The Mortgage Geezer, gave some examples of cheaper tracker rates.
He added: “With mortgage rates climbing following the conflict in Iran, savvy borrowers are dodging long-term locks in hopes of a future dip. At the time of writing, leading the charge, Co-operative Bank offers a 4.34% tracker at 60% LTV and 4.64% at 70% LTV, both featuring no Early Repayment Charges (ERCs).
“Barclays follows closely at 4.75% (70% LTV), also with no ERC. While the best fixed rates currently trade around 5%, the strategy changes for those with smaller deposits. For buyers at 90% or 95% LTV, trackers rarely come into play, as lenders often restrict these flexible deals to lower-risk tiers. These borrowers are generally funnelled into fixed rates, which currently average between 5.45% and 6.07% for high-LTV products.
“If you have a larger deposit, ‘no-fee-to-exit’ trackers are powerful tools for flexibility. However, if you have a smaller deposit, your best bet is often a shorter 2-year fix to wait out the current volatility, subject to circumstances and the borrower’s risk appetite.”
Martin Rayner, Director at Compton Financial Services, said locking in a high fixed rate now could be a mistake with so much uncertainty.
He added: “Some borrowers are using trackers as a short-term strategy, planning to switch to a fixed rate if rates fall. This can work well, particularly with a no Early Repayment Charge deal, as it allows you to move without penalty.
“The downside is you remain exposed to further increases. While the lowest tracker rates often have fees of around £999, if used short-term (less than 6 months), a no-fee option is often more cost-effective, especially below £500,000.
“Another option is to secure a fixed rate now, particularly if your mortgage starts in 3 to 6 months. This protects against further rises, while still allowing you to switch to a better fixed rate or tracker before completion if the market improves. The key is balancing flexibility with protection – rates could fall, but they could just as easily rise further given current uncertainty.”
Most first-time buyers have never even heard of tracker mortgages
Michelle Lawson, Director at Fareham-based Lawson Financial, said borrowers need to discuss what is best for them.
She added: “Clever borrowers will be the ones speaking to good brokers who can talk through the options available to them. Tracker products are priced on different markets to fixed rates hence the rate differential.
“This won’t be for everyone but there are a lot of positives to this to take a lower rate now and potentially secure and switch to a lower rate later on if the markets stabilise and fixed rates reduce below that of the trackers.”
Dariusz Karpowicz, Director at Doncaster-based Albion Financial Advice, said there is a lack of knowledge about tracker mortgages.
He added: “Most first-time buyers have never even heard of tracker mortgages, which is a shame because right now they could be a genuinely useful short-term play. With rates shifting fast off the back of geopolitical tension, a tracker with no Early Repayment Charges lets you sit tight on a lower rate and switch to a fixed deal once the dust settles.
“The catch? You carry the risk if rates climb further, and watch those product fees; paying one now and another when you fix could eat into your savings. Personalised advice from a good broker is everything here. Your circumstances dictate the strategy, not the headlines.”
If the Bank of England cuts rates, your payments fall automatically
David Stirling, Independent Financial Adviser at Belfast-based Mint Wealth, said the best tracker rates are looking attractive right now.
He added: “For borrowers coming to the end of a deal, or sitting on a standard variable rate waiting for the ‘right moment,’ the instinct is to panic. My advice? Don’t. The best tracker rates right now are sitting just above 4%, priced at Bank of England base rate plus a margin.
“The base rate is currently 3.75%, and while markets are now pricing in potential hikes later this year, the longer-term direction of travel is still expected to be downward. The key advantage of a well-chosen tracker is that if the Bank of England cuts rates, your payments fall automatically, without you having to do anything.
“No remortgage, no paperwork, no delay. Critically to this tracker strategy is finding one with no, or a very low, early repayment charge. This means that you can bail out onto a fixed rate when rates do eventually fall with little cost.”
Katy Eatenton, Mortgage & Protection Specialist at St Albans-based Lifetime Wealth Management, said tracker mortgages are not for everyone.
She added: “It’s more about the experience and advice of the broker than how clever the borrower is. If their circumstances and their attitude to risk works for a tracker, then that will be recommended, but not everyone will be in a position to take the risk if rates go up while hoping for a reduction in the future.”
Photo by Jack Carter on Unsplash.
