Hot Topic Tracker Vs Fix

With the Bank of England increasing interest rates and uncertainty surrounding the Middle East conflict, one of the biggest questions for mortgage borrowers is whether to secure a fixed rate or consider a tracker mortgage.

Traditionally, many borrowers favour fixed rates for the certainty they provide. However, with some tracker products offering lower starting rates, it is worth looking at whether paying extra for that certainty is always the best decision.

This week, we're comparing a two-year fixed mortgage against a tracker to understand the potential monthly savings, how many Bank of England rate increases it would take before the tracker becomes more expensive, and how different economic scenarios could affect the decision.

Importantly, even if Bank Rate rises further, a tracker could still work out cheaper over the full two-year period, depending on when those increases happen.

Example: £250,000 Repayment Mortgage Over 25 Years

Illustrative figures excluding fees. The 24-month saving assumes no rate changes and compares payments, not total mortgage costs.

How Many Rate Rises Would It Take?

The tracker starts 0.75 percentage points below the fixed rate.

Assuming a fixed tracker margin, it would take three quarter-point increases for the tracker to match the fixed rate.

Interestingly, even if rates increase three or four times, the tracker could still work out cheaper over two years, depending on when those increases happen and the savings made beforehand.

What Could Happen Next?

If the Middle East conflict ends: Energy prices could fall, reducing inflationary pressure and the likelihood of further Bank Rate increases. This could make a tracker more attractive.

If the conflict escalates: Inflation could remain elevated, potentially forcing the Bank of England to increase rates further. Tracker payments would rise, while borrowers already on a fixed rate would remain protected during their fixed period.

Our View

For borrowers comfortable with some uncertainty and able to absorb higher payments, a tracker could offer worthwhile initial savings.

For those prioritising certainty, a fixed rate provides protection against further increases.

The key is to compare both options, including fees, early repayment charges and the ability to switch products, rather than automatically assuming a fixed rate is the best choice.

With the economic outlook capable of changing quickly, reviewing both options has arguably never been more important.