First‑time homebuyers are turning to tracker mortgages as fixed‑rate deals climb, according to data from a major mortgage comparison site.
Tracker mortgages gain traction amid rising fixed rates
In July, 31.3 % of first‑time buyers using the site were looking at tracker or other variable‑rate products, up from 9.5 % in February. Trackers follow the Bank of England base rate plus a set margin, meaning payments shift when the base rate changes. With the base rate currently at 3.75 %, a typical tracker might sit at 4.05 %.
Fixed‑rate mortgages lock in a rate for two or five years. The cheapest two‑year fix for borrowers with a 10 % deposit is 4.81 %, while the best tracker rate sits at 3.99 %. Lenders such as West Brom Building Society also offer discounted variable rates, for example 4.49 %.
Variable products often lack early‑repayment charges, allowing borrowers to switch without penalty. This flexibility is appealing when market conditions are uncertain.
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Potential savings and the cost of uncertainty
For a buyer with a 10 % deposit borrowing £200,000 over 25 years, a two‑year fixed mortgage at 5.74 % translates to a monthly payment of about £1,257. The same loan on a tracker at 4.8 % would cost roughly £1,146, a difference of £111 per month or more than £1,300 a year.
Mortgage lender Santander reports that one in 20 of its customers now prefers trackers, up from one in 35 a year earlier. Adam French, head of consumer finance at Moneyfacts, said the shift reflects “the pressure higher fixed rates are putting on the budgets of hopeful homebuyers.”
They are priced roughly one percentage point above the base rate, making them appear cheaper than comparable fixed products. However, borrowers must remember that today’s payment is not guaranteed to last.
Because tracker rates move with the Bank of England’s policy, any future hike could raise monthly costs. Money markets currently price in a couple of base‑rate increases later this year, though some analysts see the possibility of a hold or even a cut if economic growth stalls.
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In practice, a buyer who chooses a tracker needs to stay proactive, monitoring rate changes and ready to switch if a better deal emerges.
They may find the uncertainty too burdensome.
While variable rates can lower initial outlays, they also expose borrowers to the risk of higher payments if inflation‑driven policy shifts occur. The decision therefore hinges on individual financial resilience and the ability to absorb potential payment bumps.
Buyers who can afford a modest buffer in their budgets may find trackers a viable short‑term solution, but they should be prepared for the longer‑term implications of a shifting interest‑rate environment.
