The number of tracker mortgages taken out over the past three years jumped by 67% even as interest rates rose, according to Quilter.

Tracker mortgages, which offer interest rates that follow the Bank of England base rate, lifted from 118,818 loans in 2021 to 198,044 mortgage contracts by the first quarter of this year, reports the wealth firm from data obtained after a Freedom of Information request.

Over this time the central bank hiked the base rate 14 times in a row between December 2021 and August 2023 from 0.1% to 5.25% to fight inflation.

A mortgage strategy adopted by some borrowers during this time was to take up short-term tracker mortgages, over fixed-rate deals, and then return to a fixed loan once interest rates stabilised.

The wealth firm says there was “a particularly strong growth in tracker mortgages with a two-year incentivised rate”, which rocketed 87% from 86,212 loans in 2021 to 160,787 contracts in 2024.

It points out: “This trend suggests that borrowers are increasingly attracted to shorter-term incentives, due to expectations of stable or falling interest rates in the near future.

“Conversely, expectations that rates will come down relatively quickly have meant that tracker mortgages with three-year and five-year incentivised rates have seen a decline.

“The number of three-year incentivised rate mortgages dropped by 66%, from 3,434 to 1,177, while five-year incentivised rate tracker mortgages decreased by 26%, from 10,457 to 7,777.”

Tracker mortgages over 10 years lifted by 4% over this period.

Quilter mortgage expert Charlotte Nixon says: “The substantial increase in tracker mortgages, especially those with two-year incentivised rates, highlights a shift in borrower behaviour towards more flexible options and away from the popularity of fixed-term mortgages.

“While shorter-term incentives can offer immediate financial benefits, it’s crucial for borrowers to consider the long-term implications and potential interest rate fluctuations.

Nixon adds: “Similarly, they need to be mindful of any early repayment charges as what can seem good at the outset can quickly turn out to be less cost effective.

“You also must consider the emotional toll that a tracker mortgage might take on you. If you are prone to worrying about money, then you could find yourself getting overly fixated on the Bank of England base rate.

“The benefits of a tracker must be weighed against the security of knowing how much you will pay each month.”