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What is a tracker mortgage?

  • A tracker mortgage will usually follow the Bank of England base rate to then set the interest rate you pay on your mortgage.

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Compare tracker mortgages and scour the whole of the market

Your mortgage is likely to be your biggest financial commitment, so shopping around for the best deal is vital. We can help by comparing thousands of products from a wide variety of lenders, covering the whole of the market. This way, you can be confident you’re getting the right deal.

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What is a tracker mortgage?

A tracker mortgage is much like any other mortgage you use to buy a new home or get on the property ladder. But unlike fixed rate mortgages, trackers typically feature a variable interest rate. 

Tracker mortgages usually follow the Bank of England’s base rate, which is the interest rate at which high-street banks borrow money. The Bank of England decides whether to change its base rate on the first Thursday of each month. 

When the external interest rate goes up or down, the interest you pay on your tracker mortgage deal will change as well.

How do tracker mortgages work?

If you have a tracker mortgage, the amount of interest you pay on your mortgage might be the base rate, plus or minus a certain percentage. 

Let’s say, for example, that the interest you pay on your monthly mortgage repayments is set as the base rate plus 1.5%. If the base rate at the time is 5%, the amount of interest you need to pay on your monthly repayment will be 6.5%. Because these mortgage rates track the base rate, this means the rate you pay can change, just like a standard variable-rate mortgage

So if the base rate in the example increased to 6%, the rate you pay would go up to 7.5%. Equally, if the base rate fell, so would the rate you pay. If you are considering a tracker mortgage, it’s important to make sure you can still afford your repayments if the external rate were to increase.

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What is the difference between a tracker mortgage, a variable mortgage, and fixed-rate mortgage?

If you have a variable mortgage, your lender is free to set their own interest rates. They can also change the interest rates they charge at any time. There are several factors that may influence the lender to alter their interest rate, including the cost of borrowing. 

What makes tracker mortgages different is that they are tied to an external rate, which your lender must follow. This means that tracker mortgages are often cheaper than variable-rate mortgages. 

While with tracker and variable-rate mortgages your repayments could go up or down, fixed-rate mortgages come with set instalments that won’t change over the course of your mortgage term. This is regardless of what happens to the Bank of England base rate, as your interest rate will remain unvaried. Therefore, a fixed-rate mortgage could represent a good solution if you want to budget, as you know exactly how much your repayment fees are each month.

How long do tracker mortgage deals last?

You can find tracker mortgage rates that last for two, three, five, or ten years. When the deal comes to an end, you’ll usually be moved to the lender’s standard variable rate (SVR), which is often higher. 

This is a good time to then look to remortgage to another tracker or a fixed-rate deal, either with the same lender or a new one. You can also get lifetime tracker mortgages, which track the base rate for the whole mortgage term and won’t revert to the lender’s SVR.

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How are mortgage tracker rates set?

Mortgage tracker rates are tied to the Bank of England's base rate, but how many percentage points over the base rate you pay will be determined by the individual bank or building society and the terms of the mortgage you took out. 

The margin varies among lenders and is based on factors such as market conditions, competition, and the lender's funding costs.  

When the base rate changes, banks generally update the tracker interest rate quickly – by the first day of the following month, for example – or according to the terms outlined in the mortgage agreement.

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Are you tied into a tracker mortgage?

Tracker mortgage deals are usually agreed on for a set period. Because of this, if you want to switch to another deal or pay off your mortgage early, you will probably have to pay an early repayment charge (ERC). 

If fees apply, it’s up to you to decide whether you’re happy to pay an ERC to change mortgage deals. Alternatively, to avoid spending extra money, you can wait for your mortgage term to end.

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What is an interest-rate collar?

Some lenders might apply an interest-rate collar, which is also known as an interest-rate floor, to your tracker mortgage. This means that your interest rates won’t fall below a certain level, even if the base rate does. 

If your lender sets a collar at 2% and the external interest rate goes down to 1.5%, you will still pay 2% interest on your mortgage. Not all tracker mortgages have collars, but you should make sure you know what you’re getting before you choose a mortgage deal. 

You can also get a tracker mortgage that has an interest rate cap. This is where you won’t have to pay more than a certain percentage even if the base rate continues to rise.  

For example, if your tracker mortgage is base rate plus 2%, but with a 10% cap, the most you would pay is 10% interest – even if the base rate rose above 8%. 

What happens when my tracker mortgage ends?

When a tracker mortgage introductory period ends, the borrower typically reverts to the lender’s standard variable rate (SVR). Because the SVR is usually higher than the rate you paid on the tracker mortgage, it tends to mean that mortgage repayments rise – in some cases this can be by hundreds of pounds a month. 

To avoid this happening, when you are within three to six months of the end of your tracker deal, decide what your next step will be. If you can’t pay off the remaining mortgage or you’re not selling the property, then it’s likely you will need to remortgage.  
 
If this is the case, lock in a new tracker, variable-rate or fixed-rate mortgage so that it will follow on from your existing borrowing and you won’t revert to the lender’s SVR.

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What are the advantages of a tracker mortgage?

Some advantages of tracker mortgages include:

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    Lower rates

    Introductory tracker mortgage rates can be lower than other mortgage deals

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    Cheaper when the external rate is low

    Tracker mortgages are cheaper when the external rate is low. The Bank of England base rate has risen sharply in recent years following historic low rates

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    Easy to overpay on your mortgage

    It might be easier to overpay on your mortgage, meaning your mortgage is paid off more quickly and with less overall interest

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    Can switch to a fixed-rate mortgage

    If the external rate falls, so will your interest payments. But if the external rate goes up, some providers will let you switch to a fixed-rate mortgage without any fees

What are the disadvantages of a tracker mortgage?

Some disadvantages of tracker mortgages can include:

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    Monthly payments can fluctuate

    If the base rate increases, your mortgage repayments will also increase. So if you prefer to know in advance how much you’ll be paying each month, a tracker mortgage won’t be for you

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    Can't take advantage of low rates below a certain point

    A collar rate can mean that you won’t be able to take advantage of low rates if the base rate dips below a certain point

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    Early repayment charges may apply

    You may have to pay an early repayment charge if you need to get out of your deal early

Ashton Berkhauer

Our expert says

"

Tracker mortgages will fluctuate as interest rates change and while this might seem to make them a riskier option than a fixed-rate mortgage, it depends on a few factors. If you believe interest rates will fall, a tracker could be a great option for you. Unlike some other variable rate mortgages it may also be tied to an external rate, such as the Bank of England base rate, so you’re protected if your lender changes their own rates. Some trackers don’t have exit fees, so you could use it for a while before you lock into a fixed rate. If you are unsure what might be right for you, talk to a mortgage broker who can give you some advice.

"
- Ashton Berkhauer, Home services and broadband expert

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Compare tracker mortgage deals

Finding a better deal for your mortgage is simpler when you compare mortgages online at MoneySuperMarket.

You just need to give a little information about your borrowing requirements, such as how much you need and over how long, as well as the price of your property. You’ll then be able to compare various quotes from different providers by their initial monthly cost and interest rate, the overall cost of the mortgage, and whether there are any fees included as part of the deal.

The comparison tool won’t take into account your financial situation or your credit history, so the interest rate deal you’re offered on your tracker mortgage may be different to the quotes you see.

Your home may be repossessed if you do not keep up repayments on your mortgage.

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Tracker mortgages usually follow the Bank of England’s base rate which, again, is the interest rate at which high-street banks borrow money. The Bank of England decides whether to change its base rate on the first Thursday of each month, with lenders quickly following depending on the exact terms of the mortgage deal. 

Yes, if you’re a first-time buyer, there is nothing stopping you from getting a tracker mortgage. Generally, most lenders will allow you to take out this type of mortgage as long as you meet their eligibility criteria. 

However, it may be worth considering whether you will be comfortable repaying a tracker mortgage’s instalments. As mentioned, with a tracker mortgage, repayments will become more expensive if rates go up. So, make sure to take into account every aspect when choosing the right mortgage deal for your needs.

Yes, you can. Based on your personal circumstances, joint tracker mortgages could be a valid solution if you plan to take out a mortgage with someone else, such as your partner or close friend.

Bear in mind that when you opt for a joint mortgage, both parties are responsible for the loan. In the event of any missed repayments, you will be liable to make up the balance if the other person can’t keep up with the instalments.

Paying off a tracker mortgage early could save you thousands of pounds in interest repayments, but there are some considerations first. 

Will you face an early repayment charge (ERC)? Not all tracker mortgages impose early repayment charges. But if there is one on your mortgage, calculate whether the amount you’ll save by paying off the mortgage early outweighs the saving. You may be better of switching to a better deal elsewhere instead. 

If you’re looking to clear the mortgage entirely, also consider whether it will leave you with enough money to fund your lifestyle and any emergency expenses. While it’s great to be mortgage-free, it can make sense to hold on to a mortgage – especially if the interest rate is low – because you may need money elsewhere.

Yes, it is possible to switch from a tracker mortgage to a fixed-rate in the UK. Some lenders will allow you to switch from their tracker mortgage to one of their fixed-rate deals without paying an early repayment charge.  

Conversely, if you want to move to a different lender, you may have to pay charges and additional fees.   

The availability and terms of switching will depend on the specific terms of your existing policy, so it can be advisable to consult with your lender or a mortgage adviser to explore the options and implications before making any changes.

Yes, it is possible to leave a tracker mortgage early in the UK. But it’s vital that you review the terms and conditions of the mortgage agreement, as early repayment charges or exit fees may apply.  

These charges can vary depending on the specific lender and the terms of the mortgage contract. It is advisable to consult with the mortgage provider or a mortgage adviser to understand the impact of leaving a tracker mortgage before the agreed term.

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