Tracker mortgages have seen a notable increase in popularity amid rising fixed mortgage rates driven by higher oil prices and inflation concerns linked to the ongoing conflict in the Middle East. Mortgage brokers report that tracker mortgage applications have risen to 10 percent of all applications this month, up from around 6 percent in February, when US and Israeli military actions against Iran began. This marks the highest tracker uptake since last October.

During March, as the war’s impact on mortgage costs intensified, many borrowers accelerated plans to secure the last affordable fixed-rate deals, causing tracker applications to temporarily decline. However, as fixed rates remain elevated, some borrowers are now turning to tracker deals, hoping fixed rates will eventually decline.

Currently, the lowest two-year fixed mortgage rate available is 4.79 percent from NatWest for loans up to 60 percent loan-to-value (LTV), with a £1,495 fee. In contrast, Halifax offers a two-year tracker mortgage at 0.21 percentage points above the Bank of England’s base rate of 3.75 percent, also for loans up to 60 percent LTV with a £1,499 fee. Barclays provides a similar two-year tracker deal at 0.26 points above base rate with a £999 fee at the same LTV threshold.

For a typical 25-year £200,000 mortgage, monthly repayments would be roughly £1,145 on the NatWest fixed deal, compared with about £1,051 on the Halifax tracker. Monthly costs on the tracker would surpass the fixed payment only if the Bank of England’s base rate exceeded 4.5 percent.

Industry experts attribute the surge in tracker applications to the higher cost of fixed deals. Aaron Strutt from mortgage broker Trinity Financial said that historically, many borrowers had not considered trackers, but current market conditions have shifted attitudes as fixed rates have soared. Trackers are frequently favored by those planning property moves within a few years, due to typically low or no early repayment penalties, but are also appealing to borrowers betting that fixed rates will eventually fall.

The average two-year fixed mortgage rate has increased from 4.83 percent to 5.87 percent since February, while the average five-year fixed rate rose from 4.95 percent to 5.76 percent, according to market data. These increases reflect concerns that Middle East tensions could disrupt energy supplies, leading to sustained inflationary pressure. As a result, the Bank of England has maintained its base rate at 3.75 percent, dashing earlier expectations of rate cuts this year.

Some high street lenders—including Halifax, HSBC, Santander, and TSB—have recently lowered certain fixed rates by up to 0.45 percentage points following a surge in applications.

Economic forecasters at Oxford Economics and EY Item Club suggest the Bank of England is likely to hold interest rates steady for the coming year, with the central bank’s next monetary policy meeting scheduled for April 30. Andrew Goodwin of Oxford Economics considers a prolonged pause in rate increases the most probable outcome.

Data from the property firm Connells Group indicates tracker mortgages remain more common among buy-to-let landlords and borrowers with significant equity, with 61 percent of tracker applications made for loans below 60 percent LTV. Trackers account for 6 percent of all remortgages this year and 5 percent of remortgages to landlords, but only 0.5 percent of first-time buyer loans. According to Connells’ David Fell, trackers are generally used by those with lower loan balances, reducing the risk of financial hardship if rates rise.

Borrowers with higher LTV ratios face wider margins on tracker mortgages, making fixed deals comparatively more attractive. For example, Halifax’s lowest two-year tracker rate at 90 percent LTV stands at 0.82 points above base rate, while Santander offers a 5.1 percent fixed rate for loans at that LTV, with similar fees.

Mortgage advisers emphasize that choosing between fixed and tracker mortgages depends on individual financial circumstances and risk tolerance. Trackers may offer lower initial payments and greater flexibility, allowing borrowers to switch to fixed deals later without heavy penalties. However, fixed rates provide certainty in budgeting, especially if interest rates climb substantially.

Potential borrowers are advised to carefully consider upfront fees and the costs of future switches when selecting tracker deals, as these can affect long-term expenses if capitalized into the mortgage.