While fixed-rate mortgages remain the top choice for borrowers, as the base rate falls and with further decreases predicted this year, brokers have noted a rise in the popularity of tracker mortgages.
Rising and falling along with the Bank of England’s rate decisions, tracker mortgages declined in popularity in recent years as prices rose steadily.
But more borrowers are now hedging their bets on a falling base rate. The rate currently stands at 4.5% but is widely predicted to fall to 4.25% at the next Monetary Policy Committee meeting on 8 May.
However, as with all mortgage products, borrowers need to understand the associated terms and conditions of tracker mortgages.
Taking out a tracker can be quite an anxious experience. Good advice is critical — finding not just the best deal but the right type of deal
“Tracker rates are proving more popular of late, and we started to see an increase in uptake last year,” says Xpress Mortgages mortgage and protection adviser Rachel Lummis.
“The reason for the increased take-up is the expectation that the base rate will fall, possibly several times during 2025.
“Many who chose a five-year fixed rate last time and are coming to the end of those low-rate deals now have to choose what they do next. Some are considering a tracker rate, possibly for two years, where they will benefit with future Bank base rate reductions.”
Access Financial Services mortgage sales and marketing director Nicholas Jones has also experienced increased traction on tracker mortgages of late.
“As the base rate has dropped, trackers have gained much more attention — although they remain much less popular than fixed-rate products,” says Jones.
“Their growing popularity makes sense: the base rate has fallen from 5.25% in August 2024 to 4.5%, with some forecasts suggesting it could fall to around 3.75% by the end of 2025.
A 1% rise could increase tracker mortgage payments by hundreds of pounds a month, putting borrowers under considerable financial strain
“Obviously, this is making trackers more appealing to borrowers anticipating lower monthly payments.”
But Lummis adds that trackers are not suitable for all customers, and brokers must ensure clients fully understand the nature of the product, the risks involved and the fact that a lender’s rates may not drop automatically if the base rate falls.
“If it’s flexibility that’s required so that the mortgage or part of it can be paid off without penalty, it’s crucial to choose a product that has very low or no early repayment charges,” says Lummis.
“Trackers suit those who are comfortable with a level of risk in return for the potential reward of lower monthly payments should the base rate fall, while knowing that the base rate can also be increased.
“Lenders do not necessarily cut their rates in response to a reduction in the Bank base rate. Many have factored this in well before the announcement is made as they are pricing their products based on swap rate. They can also reduce rates if they have an appetite to lend and increase rates if they don’t want to lend.”
Although tracker mortgages certainly offer flexibility, John Charcol mortgage technical manager Nicholas Mendes warns that borrowers must always read the small print.
“Tracker mortgages, like fixed rates, still come with terms and conditions, so it is important for clients to understand the product details to avoid any surprises,” says Mendes.
Trackers suit those who are comfortable with a level of risk in return for the potential reward of lower monthly payments should the base rate fall
“If borrowers are planning to make overpayments, it is essential to check whether any limits or penalties apply, and it’s a good idea to start by carefully reviewing the terms of the mortgage agreement so borrowers understand exactly how and when the rate might adjust.
“Contact a lender to clarify their policies on payment changes, particularly during periods when rates are falling.”
Jones agrees that ensuring clarity on an individual lender’s tracker terms and conditions is paramount, and that there are factors clients may not have considered.
“‘Floors’ set minimum interest rates and mean payments won’t fall below a certain point — even if the base rate drops further,” says Jones.
“Some trackers issued between 2004 and 2009 had floors that limited savings during low-rate periods. And some trackers include a ‘cap,’ limiting how high rates can rise.
“Another condition you might want to consider checking is the timing of rate adjustments. While tracker rates typically change in line with the base rate, some lenders delay implementation until the next payment cycle…. Crafty.”
Target Group sales and growth lead Mel Spencer warns that, although falling base rates are beneficial for tracker customers, rises can make a significant impact on monthly outgoings.
As the base rate has dropped, trackers have gained much more attention — although they remain much less popular than fixed-rate products
“While tracker mortgages follow the base rate down, payments go up if the bank rate rises. That can trip up overly optimistic borrowers,” says Spencer. “A 1% rise could increase tracker mortgage payments by hundreds of pounds a month, putting borrowers under considerable financial strain.
“Brokers need to make this plain to borrowers: they need to go in with their eyes open.”
Just Mortgages head of mortgages and protection Ben Allkins says taking out a tracker can be “quite an anxious experience, especially for households that are less adaptable and with less disposable income. As ever, good advice is absolutely critical — finding not just the best deal but the right type of deal”.
This article featured in the May 2025 edition of Mortgage Strategy.
If you would like to subscribe to the monthly print or digital magazine, please click here.
The post News analysis: Trackers: read the T&Cs appeared first on Mortgage Strategy.