You’ve likely heard of variable rate mortgages, and fixed rate mortgages, but what is a tracker mortgage? A tracker mortgage is a type of variable mortgage that follows an external interest rate, usually the Bank of England base rate – with the rate you pay set at a fixed margin above that base rate. So if you choose a tracker deal that is advertised as ‘base rate plus 1.30%’, it means your payable rate will be the current Bank of England base rate with 1.30% added to this. When the base rate rises, your interest rate and monthly payments will increase, and if the base rate falls, your rate and payments will reduce.
The main difference between tracker and variable mortgages is that a variable mortgage rate follows the Standard Variable Rate (SVR) of the lender, whilst a tracker mortgage usually follows the base rate set by the Bank of England. The difference between a tracker mortgage and a fixed rate mortgage is that your payments could change with a tracker mortgage. With a fixed rate deal, you’re guaranteed the same monthly payments for the term of your fixed rate, for example a 10 year fixed rate mortgage, or a 5 year fixed rate mortgage.
There are several benefits of tracker mortgages. Introductory rates can be very competitive, meaning you can get great deals, particularly when the Bank of England base rate is low so it may be a good option for those who want to keep repayments low. There is also the possibility that your monthly payments will become lower in future if the base rate falls even further, which could help you make overpayments to reduce the amount of interest you pay.
However, there are some potential downsides to this type of mortgage, too. Because the rates are variable, your payments can go up as well as down - so if you’re on a tight budget, this might not be the right sort of mortgage for you. What’s more, many lenders put a collar rate or floor on tracker mortgages, meaning that your payments can’t go below a certain level - so even if the tracked rate goes below the collar rate, your payments may not be reduced. Your decision to get a fixed or tracker mortgage is entirely personal, but you can find more information on tracker deals here to help you make your decision.
Tracker mortgage process
Tracker mortgages are usually offered for an introductory period, which is generally between 1 and 5 years. You may also be able to get a lifetime tracker mortgage which lasts for the entire duration of the mortgage.
If you opt for a tracker mortgage, say for a term of 3 years, then when it comes to an end, you’ll usually be moved to your lender’s standard variable rate, which may mean you have to pay more every month. At this point, you could look to remortgage your property to another tracker mortgage or switch to a fixed rate mortgage instead.
If you want to pay off your mortgage early or switch to a different deal during the tracker period, Early Repayment Charges (ERC) may apply.
Tracker mortgage repayments
If the Bank of England base rate changes, your payment usually changes the following month. Bear in mind that your payments could go up or down, so you may want to factor this into your budget each month.
Tracker mortgage eligibility criteria
Lenders will want to see evidence of your income, usually requiring your payslips from the last 3 to 6 months, as well as bank statements from the last 3 to 6 months to show that you can afford payments not just now but also in the future. For self employed borrowers you’ll need at least one year’s accounts and we can also help with tracker mortgages for contractors.
When you’re looking at tracker mortgage rates in the UK, don’t be tempted just to go for the one that’s closest to the Bank of England base rate. This may not necessarily be the best one for your personal circumstances, and you should also consider other factors such as the mortgage arrangement fees and Early Repayment Charges.
Finding the best tracker mortgage deal
It can be tricky to find the right mortgage for your circumstances. Here at L&C, we can help you to find the best tracker mortgage for you. We'll review deals from over 90 lenders, to find the best tracker rate mortgage for your needs.
Before you start your application, it’s wise to review your credit report. This can be done for free through the three big credit reference agencies in the UK, Equifax, Experian, and TransUnion. You should carefully review your file and request for any errors to be rectified, even small discrepancies may have an impact on your ability to get a good mortgage deal.
If you’re a first time buyer, saving as much as possible for your deposit will also put you in the best possible position for getting a great rate, whether you decide to opt for a tracker mortgage, another type of variable mortgage, or a fixed rate deal.
Allow us to compare tracker mortgage rates for you. We’ll guide you through every step of the process to ensure you get the very best solution for your needs.
