What is a tracker mortgage?

A tracker mortgage is a type of variable rate mortgage that tracks a central interest rate, usually the Bank of England base rate. As the base rate falls or rises, so does the interest rate on a tracker mortgage. Trackers are more flexible than a fixed rate mortgage, and follow fluctuations in the market.

If you are buying or looking for a new mortgage deal, trackers might be right for you. Find out more below.

How do tracker mortgages work?

Tracker mortgages usually ‘track’ the base rate of interest set by the Bank of England, which is the rate the Bank of England charges other banks to borrow from it. For this reason the interest rate you pay on a tracker will vary, but is often popular with borrowers willing to take the risk that rates might go up as well as down.

What’s the difference between tracker and variable rate mortgages?

The main differences are that the interest rate on tracker mortgages are not set by the lender. Trackers are usually offered at a lower rate than standard variable rate mortgage products, and at a slightly higher rate than the Bank of England base rate. For example, a tracker described as BEBR +0.95% means that it will be 0.95% higher than the base rate during the term of the mortgage deal.

What causes a tracker mortgage rate change?

Changes in the Bank of England base rate bring about a change in the interest rate paid by people with tracker mortgages. The BEBR (Bank of England base rate) does not change frequently, but is reviewed eight times a year.

Advantages and disadvantages

Some people prefer tracker mortgages because they have the potential to offer borrowers lower rates of interest than fixed or variable rate products. They are popular when financial markets are steady and the BEBR is high or falling, but can lead to higher monthly payments if the BEBR is rising or there is market volatility.

Contact one of the advisers at Just Mortgages for further information or to discuss your mortgage options.

Frequently asked questions

How long does a tracker mortgage last?

Most deals last for a set period of between two and four years, but some lenders offer a ‘lifetime tracker’, lasting the entire length of your mortgage.

What happens when my tracker rate ends?

At the end of the set period of a tracker deal, the interest rate you pay will revert to the standard variable rate (SVR), which will be higher than the Bank of England base rate.

Can I make overpayments on a tracker mortgage?

Yes, most lenders will allow you to make more than your regular payment each month. This could be a good way of making the most of the periods when your interest rate has reduced. However, there may be overpayment limits.

What other types of mortgage are there?

There is a wide range of mortgage products available. Some of the common types are:

• Fixed rate mortgages
• Interest-only mortgages
• 95% mortgages
• Offset mortgages
• Buy to Let mortgages
• Green mortgages

Let us help you find your perfect property

If you are thinking of buying, get in touch with haart today and we can discuss your options.