Tracker mortgages

What is a tracker mortgage?

Compare top mortgage
rates today

  • Compare the best mortgage rates & deals in the market

  • Find the right mortgage for you

  • Get free mortgage advice to help you through the process

Compare mortgages

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

Looking for a mortgage deal?

What is a tracker mortgage?

A tracker mortgage is a type of variable mortgage, which means that the interest rate you pay might sometimes change. Unlike other kinds of variable mortgages, tracker mortgages follow – or track – an external interest rate, usually the base rate set by the Bank of England.

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. For example, if the interest you pay on your monthly mortgage repayments is set as the base rate plus 1.5%, and the base rate at the time is 0.5%, the amount of interest you need to pay on your monthly repayment will be 2%.

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 1%, the rate you pay would go up to 2.5%. 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.

A chart showing how a +1.5% tracker mortgage compares to the Bank of England base rate

Data collected by L&C, accurate as of October 2019

What is the difference between a tracker mortgage and a variable mortgage?

If you have a variable mortgage, your lender is free to set its own interest rates. It can also change the interest rates it charges at any time. 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 mortgages.

How often will a tracker mortgage change?

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, but the rate has only changed three times since 2016.

The base rate tends to be increased if the economy is doing well, and will fall during a recession. This means that with a tracker deal, you will pay less for your mortgage during tough times, but your interest rates may rise when the economy recovers.

What is an interest rate collar?

Some lenders might apply an interest rate collar (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. So 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.

How long do tracker mortgage deals last?

You can find tracker mortgage rates that last for two, three, five or 10 years. And 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. 

Are you tied into a tracker mortgage?

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

What are the advantages of a tracker mortgage?

Some advantages of tracker mortgages include:

  • Introductory tracker mortgage rates can be lower than other mortgage deals
  • Tracker mortgages are cheaper when the external rate is low. The Bank of England base rate has been below 1% for over 10 years
  • It might be easier to overpay on your mortgage – meaning your mortgage is paid off more quickly, with less overall interest
  • If the external rate falls, so will your interest payments
  • 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:

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

Almost four in five tracker mortgages are taken out by people remortgaging

Data collected by L&C, accurate as of October 2019

Comparing 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.

Find this helpful? You can share this article

Our top mortgage articles

View all articles >

Popular mortgage guides

View all guides >