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YOUR HOME/PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. The FCA does not regulate buy-to-let mortgages for commercial and investment properties.
Last updated
December 1st, 2023

What is a tracker mortgage?

A tracker mortgage has a variable interest rate based on a financial indicator. The Bank of England base rate is by far the most commonly used by UK lenders, but there are others.  

Your payments go up or down each month, depending on what happens to the indicator your rate follows. When interest rates rise or fall as a result of changes to the indicator, your repayments increase or decrease to reflect this.

Tracker rates typically start out cheaper than fixed rates, but the lower rate is only locked in for a short period, often two or five years, which is known as an introductory period. When this period ends, lenders switch you to their standard variable rate (SVR).

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How do tracker mortgages work?

UK tracker mortgage rates vary depending on how much you want to borrow, how many years you take the mortgage over, and how big your deposit is. As they are liable to make your monthly repayments change frequently, it’s important to factor in whether you can afford a potential sudden increase. 

Most trackers are set at a certain level above the indicator they follow. Instead of fixed monthly payments, your mortgage interest changes depending on what happens to the indicator. 

For instance, if the tracker is at 1% above the base rate, the interest on and the base rate is 2.5%* your monthly mortgage repayments will be charged as:

 2.5%* base rate + 1% tracker = 3.5%.

Some trackers have an interest rate floor (which is sometimes referred to as a collar). This means that your interest rate won't go below a defined level, even if the rate it follows does. 

For example, keeping in mind the example above where the base rate is 2.5%* and the tracker rate is 1%, if the collar is 1.5%, you will continue to pay this even if the base rate fell all the way down to 0%. 

*for demonstration purposes only, the current BofE base rate is 5.25%.

How long does a tracker mortgage last?

Fixed-term tracker mortgage rates usually last for two, three, five or even 10 years. When this term ends, you'll start paying the lender's standard variable rate (SVR) instead. 

If you want to switch deals before the fixed term on your tracker mortgage ends, you may have to pay an early repayment charge. This is typically charged as a percentage of your remaining mortgage balance, so could be thousands of pounds.

Lifetime tracker mortgages

A lifetime tracker interest rate lasts until your mortgage is paid off. This type of tracker generally doesn't offer the best interest rates, but often doesn’t have early repayment charges for overpaying or remortgaging (changing to a better mortgage).

What can cause my tracker mortgage rate to change?

Most tracker mortgages follow the Bank of England (BOE) base rate. Buy to let tracker rate mortgages were largely tracked by LIBOR (London Inter-Bank Offered Rate) until 2021 when its use was phased out.

Those mortgages not tracked by the BoE base rate (typically buy-to-let mortgages) are now tracked by the closely linked Sterling Overnight Index Average (SONIA)

Regardless of the type, the indicator is what causes your interest, and your repayments to rise or fall. Always make sure you’re looking at a real tracker linked to an external rate, not a variable mortgage where the rate is chosen by the lender themselves.

How often could my tracker rate mortgage change?

The Bank of England base rate is usually voted on by the Monetary Policy Committee (MPC) eight times a year with occasional emergency meetings on an ad hoc basis.

The MPC has voted to change the base rate multiple times in 2022 and 2023, most recently rising to 5% in June, the highest rate since 2008. 

The base rate usually increases when inflation is on the rise and falls during a recession. This means that staying aware of the UK’s financial climate can be useful if you have a tracker deal.

What’s the difference between a variable mortgage and a tracker mortgage?

All mortgage interest rates fall into two categories – they are either variable-rate or fixed-rate.

A tracker mortgage is a type of variable rate mortgage, but it has important benefits in terms of security, predictability and cost control compared to the other types of variable rate mortgages available. 

As tracker rates are tied to an external rate, which your lender has to follow, they can be much easier to budget for than, the other types of variable rate mortgage (SVR or discount rate mortgages).

Other types of variable rate mortgage

  • Standard variable rate (SVR) – set by the lender, usually at their chosen percentage above the Bank of England base rate 

  • Discount rates – this is the lender’s SVR minus whatever percentage they choose to discount it by

Like a tracker rate, both of the above can also increase or decrease at any time as that’s what variable rates do. As the rates are set by the lender themselves, however, budgeting can be more tricky than it is with a tracker mortgage, which can only be changed based on the financial indicator it follows.

Fixed-rate mortgage

Fixed-rate mortgages are the alternative to variable-rate deals.

As you may expect, fixed rates stay the same for the duration of the fixed-rate period.

Typically fixed-rate deals last between two and five years, although it’s becoming increasingly common to see terms of 10 years or more offered. 

Advantages and disadvantages of a tracker mortgage

Low introductory rates
Lower monthly payments if the base rate is low
Making overpayments can be easy with lifetime trackers
Lenders can only change rates if the financial indicator changes too
Some providers will let you switch to a fixed-rate mortgage fee-free, if the financial indicator goes up considerably
Higher repayments when the base rate goes up, if there isn’t a cap on your tracker, there won’t be a limit on how high they could get
Less certainty around repayments makes it hard make a budget
Early repayment fees usually apply if you opt for a fixed-term tracker
If your deal has an interest rate floor, how low it can fall is limited, minimising the benefit of choosing a variable rate
A tracker can be simpler to budget for as the wider economic climate is easier to predict than any individual lender changes to SVR or discount rates. But a fixed-rate mortgage could be a better option if you want your payments to remain consistent for the length of the deal. If you’re unsure of which type of rate is most suitable for your situation, Mojo mortgages will be able to help you consider your options.

Tracker mortgage FAQs

How long do tracker mortgage deals last?

Most fixed-rate trackers typically last two, three or five years. However, lifetime trackers are available, which last for the entire loan term until you pay off your mortgage in full.

What happens when my tracker rate ends?

Your lender will move you to its standard variable rate (SVR), which is likely to be higher, meaning you will pay more each month. This is a good time to shop around for a remortgage deal.

Can I pay off my mortgage before the tracker rate ends?

Yes, but many lenders charge you if you repay or switch your deal before the initial (or introductory) tracker rate ends. This can cost thousands of pounds.

What are the alternatives to a tracker mortgage?

If you want another form of variable rate mortgage, you could opt for a discount rate mortgage, which is a set percentage below the lender’s standard variable rate (SVR) or some lenders will allow you to choose their SVR.

You could also opt for a fixed-rate mortgage deal, which is typically charged at a higher rate of interest, but sets your payments for a fixed period of time.

What is the difference between a tracker rate and a standard variable rate?

A standard variable rate (SVR) is the lender’s default rate. While it can move in line with the Bank of England base rate, the lender can also increase it or decrease it whenever it chooses. It’s usually the most expensive rate available.

About the author

Atousa Cunnell
Atousa is a Content Producer for money.co.uk, responsible for writing and editing a wide range of mortgage content that are helpful to the reader.

money.co.uk is not a mortgage intermediary and makes introductions to Mojo Mortgages to provide mortgage solutions.

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