I have a Tracker Mortgage and the interest rate just keeps rising. What should I do?

The European Central Bank (ECB) has been raising interest rates amid rising inflation. Last summer, the base borrowing rate was at 0%. Today, the base borrowing rate is 2.5% with growing speculation more rate hikes are inevitable. While initially the main banks were slow at passing the rate hikes on to borrowers, they are now making up for lost time. Those on tracker mortgages have felt the full brunt of the dramatic rate increases in their repayments over the last few months.

“Trackers” track the ECB base rate, but have a banks margin on top, e.g., someone on a tracker with a margin of 1% was lucky enough to have been paying just 1% on their mortgage from early 2016 to July 2022. Now, that same person is paying a rate of 3.5% – a jump of 2.5% in just six months.

That rate may be higher than some other rate offerings. So, it’s advisable for tracker mortgage holders to seek advice to determine if the tracker remains their best option. With tracker rates set to rise further in February 2023, fixing now may not only save money, but also protect mortgage holders from future increases.

Some trackers have lower margins than the average, meaning they are still quite cheap, however, if the base rate rises to 3 or 3.5%, even that bargain basement tracker starts to look less attractive.

It looks likely we could see two or three additional rate increases this year. Similarly, fixed rates are likely to increase significantly. Up to very recently, someone could get a fixed rate of under 2%, but by this time next year, it is predicted the cheapest rate will be over 4%. These increases also need to be factored into calculations.

Conversely, analysts expect the main ECB borrowing rate to move towards 3% by summer 2023. However, if a slowdown causes inflation to move back below the ECB’s target 2% rate, they may be forced to reverse course and cut rates again. Consequently, if someone had given up their tracker, it is unlikely they would have the opportunity to take it up again. 

If fixing, a customer is advised to ensure it’s for a long enough period so it either, sees the mortgage through to completion, or there are only a few years outstanding. It is vital to seek proper advice in relation to whether to fix the rate or not and to establish what is the best course of action for you. Other factors such as the current rate, remaining term, and the ability to cover increases, should also be discussed and need to be factored into calculations. All tracker rate customers reviewing their existing terms should avail of advice from a mortgage broker. A broker can help you explore and understand your options and the implications of such.

The decision to give up a tracker rate is not one that should be taken lightly and is possibly the most important financial decision you will make in 2023, so consider your options and seek advice from a broker before taking such steps.

Always do your own research and/or seek out advice from a Financial Broker before acting on anything contained in this article