Should a borrower fix their mortgage rate or choose a tracker?
It is one of the most common mortgage questions—and one of the easiest to answer badly.
Nobody can predict future interest rates with certainty. The decision should therefore be based on the borrower’s financial position, tolerance for changing payments and plans for the property, rather than a confident forecast about what the Bank of England might do next.
For landlords, the choice can affect cash flow across an entire portfolio. For homeowners, it can determine whether monthly household expenditure remains predictable or changes as interest rates move.
The appropriate product should match the borrower’s plan.
What does a fixed-rate mortgage provide?
A fixed-rate mortgage keeps the interest rate unchanged for an agreed initial period, commonly two, three or five years.
This gives the borrower a known mortgage payment throughout that period, provided the mortgage terms and balance do not otherwise change.
The main advantage is certainty.
A landlord can calculate rental cash flow with greater confidence, while a homeowner can organise the household budget without worrying that the next change in interest rates will immediately increase the mortgage payment.
However, certainty does not mean that a fixed rate is always the cheapest option.
If market rates fall after the product begins, the borrower will normally remain on the agreed fixed rate until the deal ends or the mortgage is repaid. Leaving early could result in an early repayment charge.
The borrower is paying for protection against rising rates while also accepting that they may not benefit immediately if rates fall.
How does a tracker mortgage work?
A tracker mortgage normally follows an external interest-rate benchmark, most commonly Bank Rate, plus a margin set by the lender.
For example, a product might track the benchmark at a stated percentage above it. If the benchmark rises, the mortgage rate and payment may increase. If it falls, the rate and payment may reduce, subject to the product terms.
Some trackers include a minimum rate, sometimes described as a floor or collar. This can restrict how far the mortgage rate will fall even if the underlying benchmark decreases.
Borrowers should understand:
- Which rate the product tracks.
- The lender’s margin.
- How quickly changes are applied.
- Whether a minimum rate operates.
- Whether the monthly payment will be recalculated immediately.
- What early repayment charges apply.
- When the tracker period ends.
A tracker can provide flexibility and the possibility of lower payments if rates fall, but it also exposes the borrower to increases.
How much payment uncertainty can you accept?
The important question is not simply whether rates might move. It is whether the borrower could remain financially comfortable if payments increased.
A landlord should test the effect on rental cash flow across the complete portfolio. One modest payment rise may be manageable, but increases affecting several properties at the same time could place greater pressure on reserves.
The calculation should include:
- Current rent.
- Mortgage payments.
- Management and maintenance costs.
- Insurance.
- Licensing and compliance expenditure.
- Void periods.
- Arrears.
- Tax liabilities.
- Emergency reserves.
Homeowners should perform a similar exercise using household income, bills, loans, childcare and other essential commitments.
If an increase would make the finances uncomfortable, the certainty of a fixed rate may be particularly valuable. If the borrower has strong reserves and can tolerate changing payments, a tracker may deserve consideration.
What are your plans for the property?
A mortgage product should also match the likely ownership period.
A landlord planning to sell a property, refinance after refurbishment or reorganise a portfolio may not want to be tied into a long fixed period with substantial exit charges.
Similarly, a homeowner expecting to move may value flexibility. Although some fixed mortgages may be portable, portability is not a guarantee that the existing loan can simply be transferred.
The borrower must normally apply again, satisfy the lender’s affordability and lending criteria, and ensure the new property is acceptable. Additional borrowing may also be offered on different terms.
Before selecting a product, consider:
- How long is the property likely to be retained?
- Is a sale or refinance expected?
- Will equity need to be released?
- Could the mortgage be repaid early?
- Is a major refurbishment planned?
- Might the ownership structure change?
- Could the borrower move home during the deal?
The rate can appear attractive but still be unsuitable if the product prevents the borrower from carrying out the intended plan.
Examine the early repayment charges
Early repayment charges can apply to both fixed and tracker mortgages, although some tracker products offer greater flexibility.
The charge may be calculated as a percentage of the outstanding balance and could reduce during the product period. On a large mortgage, even a relatively small percentage can represent a substantial cost.
Borrowers should check whether charges apply when:
- The mortgage is repaid completely.
- The property is sold.
- The mortgage is refinanced.
- A large overpayment is made.
- Part of the balance is transferred.
- The borrower changes to another product.
The permitted annual overpayment allowance should also be examined. A borrower expecting to reduce the balance quickly may value a product offering greater repayment flexibility.
Compare the complete cost
A fixed or tracker mortgage should not be compared using the interest rate alone.
The complete assessment may include:
- Arrangement or product fees.
- Valuation costs.
- Legal fees.
- Cashback or other incentives.
- Broker fees where applicable.
- Monthly payments.
- Early repayment charges.
- The reversion rate after the initial deal.
- Interest charged on fees added to the mortgage.
A lower rate accompanied by a large arrangement fee may cost more over the intended period than a slightly higher rate with a smaller fee.
For landlords with several properties, percentage-based fees can have a particularly significant effect.
Do not base the decision on a prediction
It is tempting to choose a tracker because commentators expect rates to fall—or select a fixed rate because rates might rise.
Expectations can change quickly as inflation, economic data and financial markets develop. Even when the direction is predicted correctly, the timing and size of a change may be wrong.
The more useful approach is to ask:
- What happens to my finances if rates rise?
- Would I be comfortable if rates fall after I fix?
- How much do I value payment certainty?
- How likely am I to repay or change the mortgage early?
- Which product best supports my property plans?
A borrower does not need to predict the market perfectly. They need a mortgage that remains manageable across a reasonable range of outcomes.
Review the options with NetRent
NetRent Mortgage Solutions works with DNA Financial Solutions to help landlords, homeowners and other borrowers compare fixed and tracker mortgage options.
We can examine the total cost, potential payment changes, exit charges and how each product fits the borrower’s wider property plans.
To discuss your mortgage or remortgage, contact NetRent:
Telephone: 01352 721300
Email: mortgages@netrent.co.uk
Starting the review three to six months before an existing deal ends can provide more time to compare the available routes.
NetRent does not provide legal or tax advice. This article represents our general understanding of the mortgage and rental property market and is provided for information only.
Mortgage products, rates, fees and lender criteria can change. Individual circumstances vary, and appropriate mortgage and financial advice should be obtained before proceeding.