Are Tracker Mortgages a Smart Move After The Base Rate Cut?

In a widely expected move, the Bank of England reduced its base interest rate from 5% to 4.75%* for just the second time this year following the latest meeting of its Monetary Policy Committee (MPC) on November 7th. 

*Source: Bank Of England

While the Bank’s policy lately has been to keep its base rate stable in the ongoing battle with inflation, its governor, Andrew Bailey, has suggested that rates may fall gradually from here. 

This will be welcome news for anyone with a mortgage, particularly those looking to move in the near future or remortgage an existing deal that is reaching the end of its term. It also presents an opportunity to explore tracker mortgages, most of which have a direct link to the base rate. 

Here's why tracker mortgages might now be an appealing option compared to the fixed-rate alternatives. 

What is a tracker mortgage?

A tracker mortgage rate ‘tracks’ the Bank of England's base rate movements, usually with a set margin between the two. For example, if that margin is ‘base+0.5%’, the interest rate on a tracker mortgage right now would be 5.25%. If the base rate were to fall following the next MPC meeting by 0.25%, the tracker rate would then be 5% and so on. 

Why tracker mortgages are attractive right now

Immediate savings  

With the recent rate cut, anyone with a tracker mortgage will have immediately felt the benefit on their next repayment. Cuts to the base rate mean that the interest you pay on a tracker mortgage also decreases straight away. 

Potential for further Base Rate cuts  

Most market analysts predict that the Bank of England may implement additional rate cuts over the next twelve months. Should this happen, anyone with a tracker would benefit directly, as their rates would also decrease in line with the base rate. Fixed-rate mortgage holders, by contrast, would remain locked into their agreed rates, missing out on potential savings.

Flexibility

Tracker mortgages often come with shorter tie-in periods or no early repayment charges, offering more flexibility for those who anticipate moving or repaying their loan earlier than expected. 

Are fixed-rate mortgages a safer alternative?

While tracker mortgages can offer immediate advantages when rates are falling, fixed-rate mortgages remain popular for those who prefer stability. A fixed-rate mortgage locks in an interest rate for a set term, typically two, five, or even ten years. This guarantees your monthly repayments and shields you from any future rate increases.

If the Bank of England raises rates, tracker mortgage holders could face higher monthly payments. Fixed-rate mortgages eliminate this risk, providing peace of mind to borrowers with tighter budgets or long-term financial commitments.

Tracker vs Fixed: which should you choose?

The decision ultimately depends on your financial circumstances and risk tolerance:

Go for a Tracker Mortgage if you:

•  Believe the base rate will continue to fall and remain low.

•  Want to take advantage of immediate cost savings.

•  Value flexibility and might repay your mortgage early.

Opt for a Fixed-Rate Mortgage if you:

• Prefer to know exactly how much your mortgage repayments will be each month.

• Are concerned about the possibility of rising interest rates.

• Plan to stay in your home in the long term and don’t want to worry about rate fluctuations.

In light of the Bank of England's base-rate cut, tracker mortgages present a compelling opportunity to benefit from lower repayments and further rate reductions. However, they also come with the risk of rate increases, making them more suitable for those with financial flexibility. Fixed-rate mortgages, on the other hand, remain a solid choice for borrowers seeking long-term security. 

Before committing to any specific mortgage type, it’s important to consider your overall financial situation, where you might see yourself living in the future, and how much risk you’re willing to take with your mortgage repayments. This is where we can help!

Our mortgage team can help you reach your decision by outlining all the pros and cons of each type of mortgage in more detail so you can make a fully informed choice. Once you’ve done that, they’ll work on your behalf to find the most competitive mortgage deal that perfectly suits your situation. 

Just make an enquiry, and one of our Mortgage Experts will contact you to discuss your options.