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Best tracker mortgage rates
A tracker mortgage is a type of variable-rate mortgage where the interest rate directly follows an external base rate.
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What is a tracker mortgage?
A tracker mortgage is a type of variable-rate mortgage where the interest rate is set at a fixed percentage above an external economic indicator, usually the Bank of England base rate. Your monthly payments directly follow (or track) the changes in this benchmark rate for the duration of the deal.
If the base rate rises, your interest rate and therefore your monthly payments will increase automatically.
If the base rate falls, your interest rate will also decrease. You can choose to make lower monthly payments or continue to pay your previous, higher monthly amount. The difference acts as an overpayment, which reduces your mortgage balance faster and lowers the amount of interest you'll pay over the full term.
A tracker mortgage is a lot less predictable than a fixed-rate deal, where the interest rate stays the same for the duration of the deal.
How do tracker mortgage rates work?
Lenders set trackers at a certain percentage above the base rate. Although the base rate can change, the percentage your mortgage is set above 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 our BoE page for the current figure
Tracker mortgages are generally available for 2, 3, 5 and 10 years, but lifetime trackers are also available from some lenders. Once the introductory period ends, your interest rate automatically reverts to the lender's SVR (standard variable rate) - which is typically their highest rate.
How do I get the best tracker mortgage 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. Keep in mind that the rate you're offered will also depend on your personal and financial circumstances, including your credit history.
Compare tracker mortgage rates
You may find it helpful to speak to a mortgage broker to help you weigh up your mortgage options. Our broker partner, Mojo, can compare tracker mortgages from across a wide range of lenders and recommend the most suitable option available for your circumstances.
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 usually be taken over 2 or 5 years, but they also offer a Track and Switch 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?
A tracker mortgage can be a good choice for certain borrowers, but it's not suitable for everyone. It really does depend on your personal preference, long term plans and your attitude to risk. A tracker mortgage might be a good fit for you if:
You're comfortable with fluctuating payments. Your monthly mortgage payments will go down if the Bank of England base rate falls, but they will also rise if the base rate increases. It's important you're comfortable with this uncertainty if you decide to choose a tracker mortgage.
You have financial flexibility. Before committing to a tracker mortgage, you should be confident that you could still afford your monthly repayments if interest rates were to rise significantly.
Your circumstances might change. Many tracker mortgages offer more flexibility compared to fixed-rate deals, sometimes with lower or no early repayment charges. So, if you're planning to sell your property or make significant overpayments then a tracker mortgage could give you greater flexibility.
You're a landlord looking to maximise profit. 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. A cheaper short-term variable-rate mortgage can be a more attractive option than an expensive fixed deal as it could allow landlords the opportunity to maximise profits in the short term, and the flexibility to sell or reassess their mortgage options if rates continue to rise.
If you're wondering whether a tracker mortgage might be a good decision for you, a mortgage broker can help you weigh up your options.
Advantages and disadvantages of a tracker mortgage
Your monthly payments will go down if the interest rate does
Trackers tend to be cheaper than fixed-rate mortgages at the beginning of the deal
You may be able to switch to a fixed-rate mortgage deal without incurring early repayment charges
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 will rise if the base rate does
You have much less 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
What are collars and caps on a tracker mortgage?
A collar rate is not really something you want to see on a tracker mortgage. A collar, sometimes known as a floor, is a set interest rate that your mortgage interest rate can't fall below, regardless of what happens to the base rate.
For example: If your tracker collar rate is set at 1% and the base rate falls to 0.5%, you'll still be charged 1% - plus the lender’s percentage above that 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, regardless of the BoE base rate. These are quite hard to come by, however, and tend to have higher initial rates.
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. ”Laura Hamilton, Mortgage Expert
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Tracker mortgage FAQs
What happens when my tracker mortgage deal 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 because the Bank of England's Monetary Policy Committee meets eight times a year to decide on interest rate changes. That said, they are also able to add additional emergency meetings where necessary.
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).
Can I overpay on a tracker mortgage?
Yes, in most cases, you can overpay on a tracker mortgage. In fact, a tracker mortgage may offer you more flexibility compared to fixed-rate deals.
It's still important you check your lender's specific terms, as there may be a limit on how much you can overpay each year before charges apply.
What is the difference between a tracker mortgage and a standard variable rate (SVR) mortgage?
The key difference between a tracker mortgage and a Standard Variable Rate (SVR) mortgage is how the interest rate is set.
A tracker mortgage has an interest rate that is directly linked to an external benchmark, almost always the Bank of England base rate. This means if the base rate goes up or down, your mortgage rate will change by the same amount.
In contrast, an SVR is your lender's own default interest rate. Borrowers are usually moved onto their lender's SVR automatically when their introductory deal ends, unless a new mortgage deal is arranged. While a lender's SVR is usually influenced by the BoE base rate, the lender can change the SVR whenever they want to. This means an SVR can be less predictable than a tracker rate.
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YOUR HOME/PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
The FCA does not regulate mortgages on commercial or investment buy-to-let properties.
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