Tracker mortgages have grown in popularity over the past three years as borrowers look for more flexibility in uncertain times.
The use of these deals has increased by 67% since 2021, according to asset manager Quilter, which has filed a Freedom of Information request with the Financial Conduct Authority (FCA) to find out more about the changing habits of borrowers.
Tracker mortgages are deals with interest rates that track the Bank of England’s base rate. While this means your interest rate may change during the term of your agreement, these mortgages often come with no early repayment fees. This makes them a flexible choice for borrowers who don’t want that fix their rates for a period of two or five years stint.
According to Quilter, the number of tracker deletions rose from 118,818 in 2021 to 198,044 in the first quarter of 2024. This coincided with a time of economic uncertainty and fluctuating interest rates.
Quilter’s analysis found that borrowers were particularly attracted to trackers with short-term benefits, such as two-year deals. Meanwhile, the three- and five-year trackers saw a decline.
This suggests that people used trackers when mortgage prices were high, but held on to expectations of stable or declining interest rates in the near future.
Charlotte Nixon, mortgage expert at Quilter said: “The substantial increase in the number of tracker mortgages, particularly those with two-year rates, highlights a shift in borrower behavior towards more flexible options and away from the popularity of fixed-term mortgages.
“While shorter-term incentives can provide immediate financial benefits, it is critical that borrowers consider the long-term implications and potential interest rate fluctuations. Likewise, they should take into account any early repayment charges, as what seems good at first glance can quickly prove less cost-effective.
“You also need to consider the emotional toll a tracker mortgage can take on you. If you often worry about money, you may become too fixated on the Bank of England’s base rate. The benefits of a tracker must be weighed against the security of knowing how much you are paying each month.
“For those considering tracker mortgages, it is important to keep abreast of market trends and seek professional advice to ensure their mortgage choice suits their financial objectives and risk tolerance.”
You can find more information about the pros and cons of trackers and variable rate mortgages in this feature.