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Tracker mortgages

Find out more about tracker mortgages, including whether they would be the right option for you.[1]

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What is a tracker mortgage?

A tracker mortgage is a type of variable rate mortgage where the interest rate follows, or tracks, an economic indicator (most commonly the Bank of England base rate).

The interest rate you’ll pay will be the Bank of England base rate, plus a percentage set by your lender.

If the base rate rises or falls, your monthly payments will go up or down to reflect it.

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How do tracker mortgages work?

With this type of variable rate mortgage, your repayments will be set at the Bank of England base rate, plus an added percentage decided on by the mortgage provider.

So, if your tracker deal is ‘base rate +1%' and the base rate is 0.75%, then the interest rate you’d pay would be 1.75%.

If the base rate then rose by 0.25%, your tracker interest rate would rise to 2%.

Similarly, if the base rate falls, your repayments will be reduced too - though some mortgage providers impose a ‘collar rate’, which places a limit on exactly how low the rate can go.

Tracker mortgages tend to offer cheaper interest rates than fixed-rate mortgage deals which tie you to a particular rate for a set period.

That’s partly because there’s the risk that your repayments will go up with a tracker mortgage if the Bank of England pushes up the base rate.

How long do tracker mortgage deals last?

You can choose a mortgage that has an introductory tracker rate for a set amount of time - usually between two and five years.

When that period is over, your mortgage lender will usually move you to their standard variable rate (SVR) or a different tracker rate which will be higher, or you could switch to a new tracker or a fixed-rate mortgage.

Alternatively, there are also lifetime tracker mortgages available which track the base rate for the whole term of the mortgage. These sorts of mortgages can be a risk, though, as it can be difficult to predict how the base rate might perform over a long period of time. They also tend to have a higher interest rate than a tracker mortgage with an introductory rate.

In some cases, you may be switched to a tracker mortgage after your fixed-rate mortgage term ends if you don’t remortgage.

What’s the difference between a tracker mortgage and a SVR mortgage?

Both are types of variable-rate mortgage where your monthly payments can go up or down.

The main difference is that, with an SVR mortgage, the lender sets its own rates which they can change whenever they like. With a tracker mortgage, the rate only changes if the Bank of England base rate rises or falls.

What are the advantages of a tracker mortgage?

Check out the pros of choosing a tracker mortgage:

  • They usually offer cheaper introductory rates than fixed-rate mortgages
  • They’re a good deal when the base rate is low because your repayments will be too
  • If the base rate falls still lower, you’ll benefit from further decreases, provided your tracker mortgage has no collar, or the collar is set low enough
  • A few tracker mortgages come with a cap, which means your payments won’t exceed a maximum level, no matter how much the base rate rises. Although these do tend to have higher rates because of this guarantee
  • Lenders can only change your interest rate if the base rate changes
  • Some tracker mortgages allow overpayments - useful if the base rate is low and you have cash to spare

What are the disadvantages of a tracker mortgage?

Here are the drawbacks to choosing a tracker mortgage:

  • Payments can shoot up if the base rate rises, so it’s something you need to keep an eye on and factor into your budgeting
  • They come with a degree of risk and uncertainty because there’s no guarantee exactly how much you’ll pay each month
  • Deals that come with collars (sometimes hidden in the small print) mean you might not get maximum benefits if the base rate drops
  • If the base rate rises and you want to switch to a fixed-rate mortgage, you may be charged early repayment fees

How do I apply for a tracker mortgage?

  1. Find out how much you could borrow. Our mortgage calculator can help

  2. Compare rates and tracker mortgages with us

  3. You’ll need to provide personal information such as your salary and if you’re looking for a single or joint mortgage

  4. Apply for an agreement in principle to see if you’re able to borrow the amount you need

Is a tracker mortgage right for me?

When interest rates are low, a tracker mortgage can be a good deal.

But you should always factor in the possibility that the Bank of England base rate can rise.

If you don’t like risk or uncertainty, or think you couldn’t afford sudden price hikes, then you may prefer looking for a fixed deal instead.

Remember that if there is an increase in your mortgage repayments and you aren’t able to pay them, any missed or partial payments will negatively affect your credit score.

A fixed-rate mortgage sets your interest at a certain rate for an agreed length of time, so it won’t be affected by any rise in the Bank of England’s base rate.

Frequently asked questions

The base rate is reviewed eight times a year by the Bank of England Monetary Policy Committee. So, in theory, your mortgage payments could be affected each time they review it. In reality, the base rate doesn’t change that often.

However, it has been affected a lot recently due to covid and rising inflation.

At the time of writing (May 2022), the base rate has increased for the fourth time in a row since December last year. It now stands at 1% (from 0.1% in December 2021, 0.5% in February this year, then 0.75% in March.)

Yes, it would mean that your payments will be lower.

However, some tracker mortgages have interest rate collars (also known as an interest rate floor). This is a minimum interest rate payable no matter how low the base rate falls. So in some cases, you may not benefit from a dramatic fall in the base rate.

Some tracker mortgages impose an interest rate collar. It means your interest rate won’t be allowed to drop below a certain level.

So, for example, if your deal was base rate + 0.8% and your collar was set at 0.9%, even if the base rate fell to 0%, you’d still have to pay 0.9% interest.

Check the small print of your mortgage to see if it applies an interest collar.

A tracker mortgage usually runs for a set amount of time, so there may be penalties if you want to remortgage before that period ends.

If penalties apply, then it’s up to you to decide whether you wait it out until the deal term ends or pay the early repayment charges to switch mortgages.

You’ll usually either be moved onto your mortgage lender’s standard variable rate (which would typically be a higher rate than you’ve been paying) or you can choose to switch to a new tracker or fixed-rate mortgage.

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