People Are Gambling with Tracker Mortgages Rather Than Fixing

Lenders and mortgage brokers across the finance industry are reporting in the financial press that ever more people are opting for tracker mortgages rather than fixed rate mortgages given recent increases with more increases expected as Bank of England base rates rise to curb inflation.

Moneyfacts (https://moneyfacts.co.uk) figures suggest that the average 2-year base rate+ tracker is currently 3.69% pa i.e., 1.44% over base (2.25%).  This compares to the average 2-year fixed rate of 6.25% pa.  5-year fixed rate mortgages are currently around 5.8% pa.

Comment

It is obvious why some are going for trackers to keep their costs lower in the short term.  This is a dangerous game. 

Make no mistake, inflation is not going away.  Interest rates are going to remain higher compared to the record lows that we have had for the last 15 years or so and will rise even further.  Then Bank of England has already admitted that it will not get inflation under control within 2 years and unlikely to do so for the next 5 years in our opinion.  The ‘iron curtain’ has come down and Europe’s reliance on Russian oil and gas and the move to alternative energy sources is not an easy, short-term transition, this is going to take many years, so we all need to get used to higher energy costs.

The forecast for Bank of England base rates is at 4% pa for 2023 meaning your tracker mortgage rate could hit 6% pa next year with no certainty that it will then start to fall towards the end of next year.  We believe they will not.  To devalue government borrowing covid-19 debt and cost of living support, taking us to nigh on £600 billion in additional debt, the government needs inflation over an extended 5 to 10-year period and certainly actions so far have done nothing to bring prices down meaning we know that they are trying to devalue government/public sector debt before it is due to be repaid in 20-30 years.  This is exactly what Thatcher and Reagan did in the 1980s.

By fixing, all be it at a higher rate currently, you have certainty and can budget.  By tracking you are gambling in the hope that inflation and therefor interest rates fall.  That said, a tracker may suit some if they only have short term plans and will sell up or pay off their mortgage.  We generally prefer 5-year fixed rate deals for certainty.