Is a Tracker Rate Mortgage the Best Option In 2023?
By: Mike Whitehead, Posted: March 29, 2023
With all the uncertainty currently surrounding the market it can be hard to know what is the best route to take for anyone either wanting a mortgage to buy a house or looking to remortgage at some point during 2023.
So, is it wiser to opt for a fixed-rate mortgage or choose a variable-rate option, such as a tracker rate mortgage right now?
Fixed-rate versus tracker rate mortgages – which is the best option right now?
The answer to this question, historically, usually lies in how bold you are – or are prepared to be – with your monthly mortgage repayments.
A fixed-rate offers complete peace of mind in that you’ll always know what your repayments are going to be, whereas a tracker rate (like all variable rates) can fluctuate both up and down, usually in line with the Bank Of England base rate.
At the time of writing (March 2023) the Bank Of England (BofE) has just raised its base rate for the fourteenth time since 2021, from 4% to 4.25% with signs that the recent spate of increases are not yet quite done and more rises could be on the way in 2023.
This current situation – coupled with the fact that as the base rates rise so do your monthly repayments for a tracker mortgage – could suggest that now, more than ever, is a good time to play it safe with a fixed-rate option.
So, what’s the case for tracker rates and why might they still be the best choice right now?
Why choose a tracker mortgage?
If, as many market analysts are predicting, the BofE base rate is about to reach the peak of its current cycle, then tracker rate mortgages could also be on the precipice of a downward trend. So, any future fluctuations in repayments could be more in favour of the mortgagee.
Here’s a table providing an illustration of how each type of mortgage rate compares right now from the same mortgage lender (the deals quoted below are all for 2 years and correct at the time of writing – March 2023 – based on a capital and repayment mortgage over 25 years with a 75% loan-to-value):
Lender | Fixed-Rate Mortgage | Tracker Mortgage |
Halifax | 4.36% | 4.58% |
TSB | 4.44% | 4.99% |
Natwest | 4.49% | 4.74% |
Virgin Money | 4.63% | 5.12% |
As you can see, the average interest rate for a two-year tracker mortgage is around 4.75%-5%. This reflects the typical ‘buffer’ of around 0.5% that usually exists between the BofE base rate and the tracker rate.
In comparison a two-year fixed-rate mortgage would be slightly cheaper – around 4.5%. But, if you opted for the ‘safe’ fixed-rate deal here then you would be tied to this rate for the duration of the two year term (unless you were prepared to pay an exit fee to switch to another deal).
Alternatively, choosing the ‘bold’ tracker option, whilst your repayments would initially be higher, you would only need the BofE base rate to reduce by at least 0.75% for your repayments to be the cheaper of the two. And if the base rate continues to fall then this will have proved to have been the smarter, more audacious option.
Mortgage Repayments Calculator
If you want to see how this could work out for you and your own particular mortgage situation – sampling a range of different interest rate options – use our repayment calculator here.
It’s free, easy to use and only requires a few simple steps to get the information you need.
Mortgage Repayment Calculator
Our mortgage repayment calculator can tell you how much your mortgage will cost you each month and overall. Enter the amount you’re borrowing, the term length and interest rate, and our calculator will do the rest.
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Get started with an expert broker to find out how much they could help you save on your mortgage repayments.