Mortgage blog: Why a tracker mortgage deal may be better for you

Posted 23 April 2014 by Keith Osborne

Recent data has suggested that as many as 19 in 20 mortgage borrowers are choosing a fixed-rate mortgage deal. Thousands of people are choosing low-cost fixed deals in order to benefit from record low rates and the security that their repayments won't rise when interest rates eventually increase.

However, research published in the Daily Telegraph has shown that choosing a tracker mortgage deal may actually end up being cheaper over the next five years. We look at why a variable rate deal may end up costing less.

The slower a rate rise, the more likely a tracker deal will be best

The study, published in the Daily Telegraph, has found that the current range of tracker mortgage products may end up working out cheaper than a fixed deal if interest rates were to rise slowly, as predicted.

In anticipation of a base rate rise, many lenders have raised the price of their fixed-rate deals this year while cutting the cost of variable rates. However, choosing a variable rate deal "hinges on how willing you are to gamble with a variable rate and your ability to meet repayments if they increase faster than expected."

The newspaper reports that the sooner and faster the Bank of England increases interest rates, the more likely a fixed deal will offer better value - and vice versa.

Tracker deals best if rates were to rise slowly

The newspaper compared the best five year fix, HSBC's 2.94% deal with a £1,499 fee, with the best tracker, also from HSBC and charging 1.49% above bank rate with a £999 fee.

In a scenario where the base rate rises to 0.75% in November 2015 and then every nine months until April 2019, the total cost of the tracker mortgage would be £54,414, more than £3,600 cheaper than the fix at £58,031.

If the first interest rate rise comes earlier - in April 2015 - with rates then rising by 0.25% every six months, the tracker would cost £56,862, still £1,169 cheaper than the fix.

Keith Osborne, editor of, says: "The decision between a fixed- or a variable-rate mortgage often comes down to an individual opinion of what will happen to interest rates. If rates were to rise slowly - and there is every chance that they will - then a tracker deal could, indeed, work out cheaper over the next five years. However, if you would struggle to maintain your repayments if rates were to rise faster then it may still be advisable to choose the fixed-rate option - even if it ends up costing you a little bit more."

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