Best tracker mortgage deals

What is a tracker mortgage?

A tracker mortgage is a type of variable rate mortgage. Instead of being set by your lender, the rate follows a base rate, usually the Bank of England’s. Some lenders use their own base rate, which often matches the Bank of England’s, but doesn’t have to. Your rate will be the base rate plus a set percentage, called the margin.

For example, if the base rate is 5.25% and your tracker rate is base rate + 1%, then your mortgage interest rate would be 6.25%. If the base rate goes up or down, your mortgage rate changes by the same amount.

Most tracker mortgages are offered for a set period – often two or five years – but you can sometimes find lifetime tracker deals too.

With a tracker mortgage, your interest rate changes whenever the base rate does. This usually affects your monthly payment the following month. Because your rate isn’t fixed, your repayments can vary – which means your mortgage could cost more or less depending on what happens with interest rates.

If the base rate rises, your mortgage payments will go up. If it falls, your payments should come down. Some tracker mortgages come with a 'collar' (a minimum rate the mortgage won’t go below), so your payments might not fall below a certain level even if the base rate drops.

Why choose a tracker mortgage?

There are several reasons to choose a 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.

How tracker mortgages work

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 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.

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.

Who can get a tracker mortgage?

Tracker mortgages are available to first-time buyers, home movers and remortgagers.

To apply, you’ll usually need to show:

• 3–6 months of payslips
• Bank statements
• A breakdown of your regular spending
• Your credit score
• Info about your deposit or how much equity you’ve got

Self-employed? You’ll need to provide tax returns or business accounts too.

Making repayments on a tracker mortgage

Your monthly repayments will change if the base rate changes. Your lender will usually write to you in advance to let you know your new rate and what your new payment will be.

Here’s what affects your repayments:

• Changes to the Bank of England base rate
• The margin on your tracker deal
• Any caps or collars on your deal

You’ll repay your mortgage in the usual way – with monthly payments covering both interest and capital (unless you’ve chosen an interest-only tracker, which is less common). If you want to overpay, check your lender’s policy first. Some tracker deals allow overpayments without Early Repayment Charges, but not all.