Whether you opt for a fixed rate or tracker product could depend on whether you believe the forecasts that interest rates will fall next year.

The Bank of England’s decision to hold the base rate at 5.25% paves the way for more cuts to mortgage rates, which have been easing since late-July.

Borrowing costs are currently particularly susceptible to the rate of inflation, which is now falling back steadily, according to official figures published on Wednesday. Swap rates, instruments used by the lenders to price mortgages, fell markedly after the inflation figures were published, which will give the lenders plenty of scope to make more, marginal cuts to fixed rate products in the coming days – see the chart below.

Mortgage rates are following swap rates down

The new outlook poses some tricky questions for borrowers. The cost of a typical two-year tracker mortgage remains slightly lower than a two-year fixed rate product. Borrowers that opt for that two-year tracker product would be left paying less in interest every month than if they opted for the two-year fixed rate product, and they could end up saving even more over the next two years if the Bank of England begins cutting the base rate next year as analysts expect. Analysts at global bank Citi, for example, expect the Bank of England to begin cutting the base rate in May 2024.

On the other hand, borrowers that opt for tracker products would still face the prospect of seeing their monthly outgoings rise further if the Bank of England decides to raise the base rate again.

The right mortgage for you depends on various factors, from job security and financial health, to the amount of savings you have and your appetite for risk. To better understand your options, get in touch with our expert brokers for a no-obligation consultation.