What has driven this growing trend?
Data released by the Financial Conduct Authority (FCA) has revealed a 67% surge in the popularity of tracker mortgages over the past three years. The information, gathered by Quilter, a wealth management and financial advisory firm, indicates that the number of tracker mortgages taken out has risen from 118,818 in 2021 to 198,044 by the first quarter of 2024.
This sharp increase occurred during a period characterised by economic uncertainty and fluctuating interest rates, leading many borrowers to favour tracker mortgages, according to the report. These financial products typically offer interest rates that move in line with the Bank of England base rate, providing a potentially advantageous option for borrowers looking to navigate an unpredictable market.
The data also highlighted a noteworthy trend within specific types of tracker mortgages. Particularly, those with a two-year incentivised rate experienced an 87% rise, climbing from 86,212 in 2021 to 160,787 in 2024. This shift has suggested a growing preference among borrowers for shorter-term incentives, likely driven by expectations of stable or declining interest rates in the near future.
In contrast, other categories of tracker mortgages have not fared as well. The number of mortgages with three-year incentivised rates plummeted by 66%, falling from 3,434 to 1,177. Similarly, five-year incentivised rates saw a 26% decrease, from 10,457 to 7,777. Although tracker mortgages with 10-year incentivised rates experienced a modest increase of 4%, this growth remains limited, indicating a continued preference for shorter-term solutions among borrowers.
Shift in borrower behaviour
Charlotte Nixon (pictured), a mortgage expert at Quilter, commented on the findings, stating, “The substantial increase in tracker mortgages, especially those with two-year incentivised rates, highlights a shift in borrower behaviour towards more flexible options and away from the popularity of fixed-term mortgages.”
Nixon cautioned, however, that while shorter-term incentives can offer immediate financial benefits, it is crucial for borrowers to consider the long-term implications and potential fluctuations in interest rates.
“You also must consider the emotional toll that a tracker mortgage might take on you. If you are prone to worrying about money, then you could find yourself getting overly fixated on the Bank of England base rate,” she noted. “The benefits of a tracker must be weighed against the security of knowing how much you will pay each month.”
Nixon emphasised the importance of staying informed about market trends and seeking professional advice to ensure that mortgage choices align with individual financial goals and risk tolerance.
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