The choice facing borrowers between a tracker or a fixed mortgage is a very tough one, with some opting for the tracker option as they are currently the cheaper option due to extremely low interest rates, although any sudden rise would make this choice look a very poor one overnight. With the inflation rate in the UK reaching 2.9%, economists remain split on exactly when and by how much the interest rate will rise.

Some economists are predicting a rise as early as May of this year, although this would still appear to be very much the minority view. Many others are forecasting no interest rate rises until perhaps the final three months of 2010, and more rises following in 2011. Whilst some may look simply at the current interest rate and inflation figures (CPI currently stands at 2.9%) to make their choice, a number of economists are advising that lifetime trackers may be the wisest choice. This may also be due to the fact that the predicted cuts in pubic expenditure and concomitant tax rises will result in the same curbed levels of inflation as would a rise in interest rates – even if inflation remains high-ish.

Many have forecast that rates may not rise over 2% for another three to four years. Tracker mortgages have continued to rise in popularity over the last twelve months, and currently account for more than half of all newly issued mortgages. In fact, figures for the easily part of last year show that around 90% of newly issued mortgages were fixed rate mortgages, especially for many first-time buyers. Yet, many Building societies are now breaking their promises to borrowers and raising their rates, citing what they call ‘exceptional circumstances.’ In the wake of this some mortgage brokers have postulated that, should rates remain at their historically low levels over the next few years, then those borrowers with smaller deposits may benefit more from a tracker mortgage. The decision is, however, more dicey for a borrower with a larger deposit, of perhaps 40%. Average figures show that, in such a case, the difference between the two mortgages would be negligible at best.