Tracker mortgage rates are now the cheapest on the market, after banks hiked all their fixed deals above 4 per cent because of the conflict in the Middle East.
This the first time that the cheapest tracker mortgage rates have gone below the cheapest fixed rates since October 2023, according to rates scrutineer Moneyfacts.
It means those looking for a new mortgage can still get a sub-4 per cent rate if they have at least 40 per cent equity in their home or a 40 per cent deposit, but only by taking a tracker deal.
This could present an opportunity for homeowners to save money – but there is plenty to consider before taking one, not least because some are beginning to suggest the base rate could rise later in the year.
Here is everything they need to know.
What is a tracker mortgage?
Tracker mortgages follow the Bank of England base rate, plus a certain percentage on top.
For example, someone might be given a tracker mortgage at base rate, currently 3.75 per cent, plus 0.25 per cent.
Gamble: While trackers are cheaper now they may become more expensive than fixed rates if interest rates go up
This would set the rate they pay at 4 per cent. If the base rate rose to 4 per cent, though, their mortgage rate would rise to 4.25 per cent.
Tracker mortgages also have a rather unique feature in that they tend to come without early repayment charges. This means that, unlike fixed deals, they can often be paid off, overpaid or switched away from without penalty.
It gives homeowners on a tracker a crucial get-out, in the case that the base rate rises – and means they could switch to a fixed-rate deal if those became cheaper.
What are the rates?
The lowest two-year tracker deal is currently offered by Nationwide at 3.94 per cent and a £999 fee. That’s base rate plus 0.19 per cent.
On a £200,000 mortgage being repaid over 25 years that would equate to paying £1,049 a month.
Halifax, Lloyds Bank and HSBC are also offering sub-4 per cent tracker deals at present.
While all these deals are reserved for those either buying with at least a 40 per cent deposit or remortgaging with at least 40 per cent equity, trackers also offer lower rates for those with less in the bank of their home.
For example, the lowest tracker for someone remortgaging with 25 per cent equity in their home (75 per cent loan-to-value) is 4.04 per cent, compared to 4.16 for someone fixing for two years.
What’s happening to fixed-rate mortgages?
There has been a flood of rate increases on fixed rate mortgages. Most major lenders have increased them, including likes of NatWest, Nationwide Building Society and Santander.
The lowest fixed rates, which went below 3.5 per cent only as recently as January, are now back above 4 per cent thanks to the conflict in the Middle East setting off fears over resurgent inflation.
The average two-year fix has risen from 4.83 per cent at the start of March to 5.28 per cent today, according to Moneyfacts. Its highest since April 2025.
The annual cost of a typical two-year deal is now £788 higher than two weeks ago for £250,000 borrowed over 25 years.
Meanwhile, the average five-year fix has risen from 4.95 per cent at the start of March to 5.32 per cent today. Its highest since February 2025.
Will the base rate rise?
While a tracker deal may be cheaper now, there is a risk it becomes more expensive in the coming months if the Bank of England decides to hike interest rates, rather than hold or cut them.
Due to the potential inflationary impact caused by the conflict in the Middle East, traders are no longer expecting any interest rate cuts this year.
It is widely predicted that the Bank of England will hold rates at its next meeting on 19 March. However, there is a growing possibility that it will raise them later this year if inflation begins to rise.
Aaron Strutt of broker Trinity Financial thinks more people will be tempted by a tracker.
‘Bank of England tracker rates have always had a place in the market, but the overwhelming majority of borrowers have consistently taken two or five-year fixes,’ said Strutt.
‘Now that they are undercutting the cheapest fixes they will get more attention as many look to minimise their monthly repayments.
‘More borrowers will be tempted to take trackers as they wait and see what happens to fixes when the situation in the Middle East calms down.’
Don’t take a tracker lightly
Chris Sykes, mortgage broker at MSP Financial Solutions thinks more people will opt for trackers to take advantage of the lower rates
It’s vital that anyone taking a tracker is comfortable with the risk they are taking. If the base rate goes up, so will their monthly costs.
Chris Sykes of mortgage broker MSP Financial Solutions says that borrowers need to be certain they’ll still be able to afford the payments if interest rates go up by 1 or 2 per cent.
While a 3.94 per cent two-year tracker rate might sound great now, a 4.94 per cent or 5.94 per cent rate might be unsustainable.
Borrowers can of course jump ship to a fixed rate, but it’s worth bearing in mind that fixed rates tend to be priced with the future in mind – so if sentiment changes quickly, it may be that fixed rates are significantly higher by the time they do switch.
Sykes warns that it all depends on the direction of oil prices, a key driver of inflation, and whether the mortgage rate rises caused by the war in the Middle East are a blip, or the new normal.
‘You’d hope it is a blip,’ says Sykes, ‘but who knows these days. Any product that isn’t fixed is a higher risk product because you are exposed to the market.
‘Sometimes these risks pay off, but other times they do not.
‘Now the market has flipped, we could see base stay the same for longer, or even possibly increase. A tracker may look attractive now, but perhaps not if the base increases.’
Strutt, suggests checking to make sure the tracker either has no early repayment charges or very low exit charges.
‘Ideally if you take a variable rate you should take one that lets you switch into a fixed rate without being penalised,’ he says.
He also suggests checking whether your lender offers tracker rates, as some lenders won’t give them to existing customers without early repayment charges.
‘Many of the lenders do not offer their existing customers tracker rates especially without early repayment charges, so if your mortgage is coming up for renewal you may need to remortgage to another lender if you really want one.’
Outside of the current circumstances, trackers can still suit some borrowers well according to Stutt.
‘They are still a good option for those needing flexibility as they often have no tie-ins,’ he says.
‘This means borrowers can take them as a shorter-term option if they think they are going to move home soon or that their situation may change within a couple of years.’