Tracker Mortgages

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What are tracker mortgages?

They’re a type of variable rate mortgage usually set at a certain percentage above the Bank of England (BoE) base rate. Although buy-to-let and commercial trackers may follow a different financial indicator, such as SONIA (sterling overnight index average).

As with all variable mortgages, the interest rate can rise or fall during your deal period. Trackers are often cheaper than fixed-rate mortgage deals during the initial deal period, but could go up straight away.

That said, it’s easier to predict tracker rate changes than changes in other variable rate mortgages, as they only change when the base rate - or other financial indicator - does, rather than at the lender’s discretion.

How do tracker mortgages work?

Usually you’ll take a tracker mortgage over a set term of around 2 to 5 years, although it’s possible to get longer, and even lifetime deals.

They are set at a percentage - decided by the lender - above the BoE base rate. Like all mortgages, the interest rate you’re offered depends on the size of your deposit and your personal circumstances.

Although the base rate can change, the amount it’s set above it can't change for the length of the deal. When the base rate changes, your repayments therefore go up or down by a set percentage.

For example:

Base rate 4.5%* - your lender sets the rate at 2% above the base rate - you pay 6.5%
Base rate changes to 4.75% - you now pay 6.75%
Base rate changes to 3% - you now pay 5%

*For demonstration purposes only but correct at the time of writing

How are tracker mortgages different from other mortgages?

Tracker mortgages are a type of variable rate mortgage, so they are different to fixed-rate mortgages because the interest rate can change during the deal term.

With a fixed-rate mortgage you’re paying for the security that the interest rate won't change during the deal period. This is a safer option for those on a strict budget, even though fixed rates are usually set higher than variable rates.

Trackers differ from the other types of variable rate mortgage - standard variable rates (SVR) and discount rates - as they follow an external indicator, like the base rate. This means lender’s don’t have full control over changes.

On the other hand, each lender has an SVR, which is set purely at their discretion. Although they may be influenced by base rate changes and other external financial factors.

A discount rate mortgage works similarly to a tracker, but instead of following an external indicator, it follows the lender’s SVR.

How often do tracker mortgage rates change?

The BoE Monetary Policy Committee (MPC) meets 8 times per year to set the base rate, but can have additional meetings if they feel it's necessary.

This means that your interest rates - and therefore repayments - could change 8 times per year or more. Although the base rate won’t always change, it's increased 11 times in a row as of April 2023.

Staying up to date with UK financial news can help you to plan ahead - usually the base rate increases when inflation is high.

How long do tracker mortgages last?

You can typically take a tracker mortgage deal to suit your needs. 2, 3 or 5 years are the most common term lengths, but it’s possible to get 10 year terms and even lifetime tracker mortgages.

Once your deal ends, you’ll fall onto the lender’s default interest rate, the SVR. This is usually higher than fixed-rate and other variable rate deals, so you may want to look at remortgaging to avoid the SVR.

What happens if I want to end a tracker mortgage early?

If you’re within a set deal period, most lenders charge early repayment charges (ERC) to leave before the end date. Although this doesn’t usually apply to lifetime trackers.

How much ERCs cost is reflected by how long is left on your deal. Expect to pay a lot more if you have 9 years left on a deal than if you only have 1.

Either way, it can cost thousands to leave a deal early, and sometimes this outweighs the benefits of remortgaging to a cheaper rate. A mortgage broker can help you understand your options and which one is best for your needs.

What are the pros and cons of a tracker mortgage?

They often have cheaper interest rates at the beginning of the deal compared to fixed rate deals
There's more certainty than other variable rates due to the rate following an external indicator
If the financial indicator falls, you’ll benefit from lower repayments
Some lenders may allow unlimited overpayments - especially if it’s a lifetime deal
Some lenders might allow you to switch to a fixed-rate mortgage for free if the base rate rises a lot
If you can find a deal with a cap, you’ll benefit from knowing your interest won’t rise beyond a certain level

They can change 8 times or more per year, meaning your repayments could become too expensive
You have to be prepared in case your rate increases, so they're harder to budget for than fixed-rate deals
You may have to pay ERCs to leave a deal before it ends
If the deal has a floor, your interest rate can't fall below a certain level, so you may not benefit when the base rate falls below a certain level

Is a tracker mortgage right for me?

A mortgage broker can help you answer this question, but ultimately it depends on what you want from your mortgage.

A tracker mortgage may a good option for those with a more flexible budget. Borrowers who could still afford repayments if interest rates rise, but want to benefit from low initial rates if rates fall.

If you’re considering a variable rate mortgage, a tracker tends to provides the most certainty of the 3, as it’s easier to predict rate changes.

If you like complete certainty and want to know what your repayments will be every month, a fixed-rate mortgage may suit you better.

Need more help?

What is an interest-rate cap?

Also known as a ceiling, a cap is rare to find on a tracker, but can be invaluable. It’s the exact opposite of a floor (or collar). Your interest rate can never rise above the cap, even if the financial indicator does.

So, if you have a deal set at 2% above the base rate, but capped at 5%, even if the base rate rose above 5%, you wouldn’t pay more than that.

Are you tied into a tracker mortgage?

Most tracker deals have a set length, meaning there are likely to be early repayment charges if you leave before the deal term ends.

Some lenders may let you switch to one of their fixed-rate products without paying fees if your tracker rate suddenly increased by a lot. this is not common though, most people will end up paying ercs.

Are you tied into a tracker mortgage?

There are no specific restrictions on the type of borrower that can use a tracker mortgage. If you meet the lender's criteria, you can use one as a first-time buyer - but make sure you can afford any potential increases in repayments.

Can I get a joint tracker mortgage?

Yes, so long as all applicants meet the criteria, you can take out a tracker mortgage with as many applicants as the lender allows. Most joint mortgages are capped at 2 applicants but some allow up to 4.

Can I move my tracker mortgage if I move house?

Some trackers are portable - meaning you can take them with you when you move. This is laid out in your terms and conditions, so if it’s important to you, be sure to ask before you commit.

Keep in mind that porting your mortgage to a new property is not always the cheapest option and you may get a more competitive mortgage from another lender - especially if you’re looking to increase your borrowing.

What our expert says

Tracker rates can be easier to predict than other variable rate mortgages, as they follow an external financial indicator, normally the base rate. If you think the base rate is likely to fall in the near future, you may benefit from lower payments during your deal, helping to maximise your savings. But you should always be prepared for the alternative - if rates rise, make sure you can afford the payments.

Claire Flynn, Senior Content Editor at Mojo

Claire Flynn Senior Content Editor | Mojo

Learn about different mortgage types

Mortgages

are a type of loan used to buy a property. The mortgage is secured against the value of the property.

First-time buyer

are designed to help give you that first step on the housing ladder.

Remortgage

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Interest-only mortgages

are where you only pay back the interest each month. When your mortgage term comes to an end, you still owe exactly what you borrowed at the start.

Buy-to-let Mortgages

aren't that different from a regular mortgage. But there are some important differences.

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Page last reviewed: 31 May 2023

Reviewed by: Claire Flynn

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