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What is a tracker mortgage?
Tracker mortgage rates are at a set amount above and economic indicator, usually the Bank of England base rate and follow (or track) the changes in this rate for the duration of the deal. Some commercial mortgage products may track SONIA instead of the base rate, however.
Your monthly repayments and fall in line with the economic indicator that your tracker mortgage follows. A fixed-rate deal is likely to be more suitable to cautious borrowers, as the interest rate stays the same for the duration of the deal - but there are advantages to tracker mortgages.
If the base rate goes down, you'll pay less interest, but can also continue paying your usual payments if you chose, which effectively become slight overpayments. This reduces the total amount of interest you’ll pay even further, as your balance will reduce more quickly. It can also help you repay your mortgage more quickly.
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Tracker mortgage rates
Tracker mortgages are directly linked The Bank of England (BoE) base rate – also known as the bank rate. Lenders set trackers at a certain percentage above the base rate and although the base rate can change, the percentage your mortgage is set above it cannot during the introductory deal period.
For example: If the BOE base rate is 5%*, a lender could set their tracker at 2% above the base rate, so you'd pay 7%. If the base rate rose to 6% you'd pay 8%, which is still base rate+2%
*For demonstration only, please check the BoE page for the current figure
Once the introductory period ends your interest rate automatically reverts to the lender's SVR (standard variable rate) - which is typically their highest rate.
The best tracker mortgage rates are only slightly above the base rate, but you'll usually need a large deposit and may have to commit to a longer tie-in period to access such a competitive rate.
Trackers are generally available for 2, 3, 5 and 10 years, but lifetime trackers are also available from some lenders. You can usually select a tracker rate no matter whether you're buying a residential or buy-to-let property.
Which lenders offer tracker mortgages?
Most high street and specialist lenders offer a selection of tracker rate deals of various lengths.
The Natwest tracker mortgage, for example, can be taken over 2 or 5 years, but they also offer a track and fix option, which allows you to try out a tracker rate, but fix if you feel that interest rates are heading in the wrong direction.
Should I get a tracker mortgage?
Ultimately it’s difficult to choose which is the right mortgage interest type for you, as it depends on personal preference, long term plans and, honestly, a bit of guesswork. A mortgage broker can help you to make a more informed decision, however, and find the best tracker rate available to you.
If you're comfortable knowing that your monthly payments could rise, then a tracker rate mortgage could save you a lot of money. Especially if the BOE base rate starts to come down.
Many buy-to-let investors using interest-only mortgages make use of tracker rates, as the lower monthly repayments help them to keep operating costs low.
“For landlords, the bottom line is how much profit am I going to make from this. A cheaper short-term variable-rate mortgage can be a more attractive option than an expensive fixed deal as it allows them the opportunity to maximise profits in the short term, and the flexibility to sell if rates continue to rise.”
Ron Ogbue - Mortgage Expert at Mojo Mortgages
Are you tied into a tracker mortgage?
The good news is, you’re not always locked into a tracker mortgage like you would be with a fixed-rate product. This means that if rates start to rise you can often switch to another type of mortgage deal without having to pay ERCs (early repayment charges).
What are collars and caps on a tracker mortgage?
A collar rate is not really something you want to see on a tracker mortgage. Sometimes also referred to as a floor, a collar is a set interest rate that your mortgage interest rate can't fall below, regardless of what happens to the BOE base rate.
For example: If your tracker collar rate is set at 1% and the BOE base rate falls to 0.5%, you'll still be charged 1% - plus the lender’s percentage above the base rate.
If you’re cautious, the best tracker mortgages for you will probably be one with a cap (also known as a ceiling). This is the opposite of a collar - so a set interest rate your rate won't rise above it, regardless of the BOE base rate. These are quite hard to come by, however.
You'll likely pay more for a tracker with a cap, but they can be helpful if you’re on a set budget.
Advantages and disadvantages of a tracker mortgage
Your repayments will go down if the base rate does
They tend to be cheaper than fixed-rate mortgages at the beginning of the deal
You could save money compared to a fixed-rate deal
Some tracker deals don’t have early repayment charges
It can be easier to overpay your mortgage without using additional funds if interest rates fall
Your mortgage repayments rise if the base rate does
You don’t have any certainty about the cost of your ongoing mortgage repayments
A tracker could end up being more expensive than a fixed rate if rates rise
If your tracker has a 'collar' your interest rate can’t fall below a certain level, which means your benefits are limited
Deals with caps offer slightly greater certainty that your interest rates won’t become unaffordable, but are likely to be more expensive. They are also hard to come by
Tracker mortgages are directly impacted by changes in the Bank of England base rate. They tend to be slightly cheaper than fixed rates initially, but rate changes over the course of your deal may mean you end up paying more. ”Kellie Steed, Mortgage Content Writer
Tracker mortgage FAQs
What happens when my tracker mortgage rate ends?
Unless you switch to a new deal, your lender will put you onto its standard variable rate (SVR) of interest, which is usually higher. Most people will save money by switching to a new mortgage deal rather than paying the SVR. You can take out a new deal (or product transfer) with your current lender or remortgage with a different one.
What are the fees involved in a tracker mortgage?
As with all mortgage deals, you could pay a product fee, which could be up to £1,000 or more. You may also pay valuation fees and legal fees, depending on the deal.
Make sure you factor in the mortgage fees you’ll pay when you’re comparing the cost of deals as they can make a deal with a lower rate more expensive overall. The best way to do this is by looking at the total cost over the deal period.
Can I switch from my fixed-rate mortgage to a tracker mortgage?
If you’re considering switching from a fixed-rate mortgage to a tracker because tracker rates are lower, bear in mind that your rate could go up so you could end up paying more overall than if you had stuck with the fixed rate. If you need advice on which option is the best for you, speak to a mortgage broker.
How long can I get a tracker mortgage for?
You can get a tracker for the lifetime of the mortgage if you wish, however, it’s more common to take a tracker rate for an introductory period, usually between one and five years.
How often will my interest rate change with a tracker mortgage?
Your interest rate could, in theory, change up to eight times a year on a tracker mortgage. This is not typical, but has been the case during 2022-2023.
This is because the Bank of England' monetary policy committee meets eight times a year to decide on interest rate changes. That said, they are also able to add additional emergency meeting where necessary.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
Uswitch is not a mortgage intermediary and makes introductions to Mojo Mortgages to provide mortgage solutions. Uswitch and Mojo Mortgages are part of the same group of companies. Uswitch Limited is authorised and regulated by the Financial Conduct Authority (FCA) under firm reference number 312850. You can check this on the Financial Services Register by visiting the FCA website. Uswitch Limited is registered in England and Wales (Company No 03612689) The Cooperage, 5 Copper Row, London SE1 2LH. Mojo Mortgages is a trading style of Life's Great Limited which is registered in England and Wales (06246376). Mojo are authorised and regulated by the Financial Conduct Authority and are on the Financial Services Register (478215) Mojo’s registered office is The Cooperage, 5 Copper Row, London, SE1 2LH, and head office is WeWork No. 1 Spinningfields, Quay Street, Manchester, M3 3JE. To contact Mojo by phone, please call 0333 123 0012.
Last updated: 06 September 2023