Almost a third of first-time buyers are considering a tracker or variable rate mortgage to save money as fixed rates move higher.
Data from the comparison site Moneyfacts shows that 31.3 per cent of first-time buyers looking for mortgages in July were considering trackers and other variable deals. That marks a sharp increase from just 9.5 per cent in February.
The preference for variable deals remained below 10 per cent throughout the spring before climbing as fixed mortgage rates increased.
Unlike fixed rates, which lock in payments for two or five years, tracker mortgages follow the Bank of England base rate with a set percentage added on top. A borrower might be offered a tracker at the current base rate of 3.75 per cent, plus 0.3 per cent, setting the rate they pay at 4.05 per cent. If the base rate rises to 4 per cent, their mortgage rate rises to 4.3 per cent, but if the base rate is cut to 3.5 per cent, the tracker rate drops to 3.8 per cent.
Mortgage rate comparison
The lowest fixed rate deal for buyers with a 40 per cent deposit starts at 4.32 per cent, while the lowest tracker rate is 3.99 per cent. For a buyer with a 10 per cent deposit, the lowest two-year fixed rate is 4.81 per cent.
Some lenders offer discounted variable rates, which follow a lender's standard variable rate with a discount applied. The standard variable rate is the higher rate borrowers fall onto when their fixed period ends and they do not switch to a new deal. West Brom building society is offering a discounted variable rate of 4.49 per cent.
Average monthly savings
For a buyer with a 10 per cent deposit, the average two-year fixed mortgage rate increased from 5.09 per cent in February to 5.74 per cent in July.
On a £200,000 loan over a 25-year term, that increase pushes monthly repayments from around £1,180 to £1,257. In contrast, the average new two-year tracker rate for the same deposit stood at 4.8 per cent in July, which costs around £1,146 a month.
That provides a saving of about £111 a month, or more than £1,300 a year, compared with the average equivalent fixed-rate mortgage.
Mortgage lender Santander noted a similar trend. The bank says one in 20 of all its mortgage customers are opting for trackers, up from one in 35 at the same time last year.
Tracker mortgage flexibility
"The big jump in first-time buyers researching tracker mortgages reveals the pressure higher fixed rates are putting on the budgets of hopeful homebuyers," Moneyfacts head of consumer finance Adam French said. "For many borrowers, saving more than £100 a month compared with a fixed-rate deal could make the difference between being able to buy a home or delaying their plans."
A key benefit of tracker mortgages is that they usually do not come with early repayment charges, which gives borrowers a get-out option. They can be paid off, overpaid or switched away from without penalty. This makes them popular during market uncertainty, as homeowners can switch to a fixed-rate deal if they become cheaper.
However, successfully using a tracker requires the borrower to proactively switch their mortgage when the rate is no longer favourable.
"Right now, many tracker mortgages look attractive because they are priced at around one percentage point above the Base Rate, making them noticeably cheaper than equivalent fixed-rate products," French said. "However, borrowers need to remember that today's monthly payment is not guaranteed to last."
Bank of England base rate
Tracker rates always carry uncertainty because they rely on the Bank of England base rate, while discount rates are dictated by lenders but tend to react to interest rate moves.
The Bank of England has held interest rates at 3.75 per cent since December 2025. Markets expected the bank to begin cutting rates earlier this year, but inflation triggered by the conflict with Iran has reversed those hopes.
Inflation stood at 2.6 per cent in the 12 months to June and is expected to rise in the second half of the year. Three members of the Monetary Policy Committee voted to hike rates to 4 per cent last week, while the other six voted to hold the rate at 3.75 per cent.
Future rate expectations
Traders are betting on one or two rate hikes in the second half of the year if there are further inflation shocks, though the bank could maintain the current rate or cut it if concerns over economic growth and unemployment rise.
"Money markets are currently pricing in a couple of Base Rate hikes over the coming months," French said. "If those expectations prove correct, tracker mortgage repayments will rise too."
"Recent years have also shown how our volatile times can quickly move the outlook for interest rates, so anyone considering a variable mortgage needs to ensure they have enough room in their budget to cope with higher monthly repayments," French said. "While some borrowers may be prepared to accept that uncertainty in return for lower initial costs, others will value the security of knowing exactly what they'll pay each month."
"The right choice ultimately depends on individual circumstances, but anyone stretching themselves to get onto the property ladder should carefully consider whether they can still afford their mortgage payments if interest rates move higher," he said.
