Mortgage interest rates: should I fix or go for a tracker?

Choosing the right mortgage product is a crucial decision for home buyers, whether you’re purchasing property for the first time or moving up the ladder. The mortgage type you select now could have a huge impact on your stability for the long-term. But, with so many options to choose from, picking the right product can be a real minefield.

Fixed-rate and tracker mortgages are two popular mortgage types and products that you are certain to encounter during the property buying process. Join us as we explore the key advantages and considerations of each so you can determine whether a fixed or tracker mortgage is the right fit for you.

The fixed rate

One of the main advantages of fixing your mortgage is the stability it offers. By choosing a fixed-rate product, you’ll know exactly what you’re paying and when for a predetermined period, which ranges from two to five years or longer – even if Bank of England (BoE) interest rates fluctuate. This means you’ll enjoy certainty and clarity, which is great for first time buyers, small deposit borrowers, and homeowners on strict budgets.

The fixed product essentially provides vital protection against market volatility, which has mattered more than ever during the past year or so. 

In times of economic uncertainty, fixed-rate mortgages act as a shield against rising interest rates. This protection can be invaluable, especially when economic conditions are unpredictable, safeguarding you from potential payment increases that could put a strain on your finances.

The tracker

Directly linked to a specified base rate, which is more often than not set by the BoE, plus a fixed percentage, a tracker product enables you to ride the waves of the mortgage market. As a result, when the base rate changes, so does your mortgage interest rate.

For those willing to embrace some level of uncertainty, tracker mortgages can lead to fantastic savings in the right conditions. If market interest rates remain stable or decrease, you get to enjoy lower monthly payments and save essential funds over the life of your mortgage.

Most trackers also come with more flexible terms, including the ability to make overpayments without incurring penalties. This flexibility allows you to pay off your mortgage faster and reduce the interest paid overall.

How do they compare?

While fixed-rate mortgages offer stability, they may come with higher initial interest rates compared to tracker mortgages. In addition to this, if market interest rates decrease during your fixed term, you won’t benefit from the reduced rates, potentially missing out on huge savings.

At the other end of the scale, the vulnerability to market fluctuations that tracker mortgages leave you exposed to can be a risky business, as many homeowners and tracker customers found in recent years.

If interest rates rise, your monthly payments will increase accordingly, potentially causing financial strain. This unpredictability may not be suitable for those who prefer a stable budget.

Should I fix or track right now?

When deciding between the two, considering your current circumstances along with your financial goals is important. Future plans like potential job changes, family expansion and relocation are all certain to influence the level of stability you need from your mortgage.

If your current mortgage deal is coming to an end in the next six months, you may want to take note of this advice from MoneySavingExpert:

“Consider locking in a fixed deal now, as holding out could be risky. Here, you’ve got some time to wait and see whether interest rates on fixed mortgage deals continue to come down. Lock in a fixed deal now and you’ll have insurance against any rate rises and the flexibility to switch to a cheaper deal if one launches before your current rate ends (but remember that rates could go up or down). The other advantage of fixing is that it gives you price certainty.”

Seeking guidance from an independent mortgage broker like us is recommended when finding a first-time mortgage or remortgaging. Our local mortgage advisors can provide personalised advice and support based on your specific circumstances. Contact us today to get started.