A tracker mortgage is a mortgage with an interest rate that's guaranteed to be an agreed amount above the Bank of England base rate. Or, it could be an agreed amount above another financial indicator, but it's most commonly the Bank of England base rate.

It's guaranteed to change whenever the rate it tracks goes up or down.

For example, your tracker mortgage might track the Bank of England base rate at 2% above it. That means, if the base rate was 0.25%, you'd pay interest at 2.25% until the base rate changed. If the base rate rose to 0.75%, your new mortgage base rate would be 2.75%. If the base rate fell to 0%, your new mortgage base rate would be 2%.

But the Bank of England base rate can also increase. This means the interest on your tracker rate mortgage, and the amount you have to repay each month, could go up.

When it comes to your mortgage rate, tracker changes can either work in your favour, or against you. And it all depends on the base rate that your mortgage tracks.

How does a tracker mortgage work and what other interest rates can you get?

How long does a tracker mortgage last?

A rate tracker mortgage offers tracker interest rates for a specific time period. For example, you could get a 1 or a 2 year tracker mortgage. You can usually choose a time period up to five years.

When the set period of your tracker mortgage ends, you'll start paying the lender's standard variable rate (SVR) instead. The SVR is an interest rate that the lender sets. It can change at any time. It's usually higher than most tracker rates, so when your base rate tracker mortgage term ends you'll probably want to switch to a new mortgage.

If you want to pay your interest rate tracker mortgage off before the tracker period ends, you'll usually have to pay an early repayment charge. You'll also have to pay this if you want to switch to a cheaper mortgage. An early repayment charge can cost thousands of pounds.

Lifetime tracker mortgage

You might have heard of a lifetime tracker mortgage. That's when the tracker interest rates last until your mortgage is paid off.

A lifetime tracker mortgage might not give the very best tracker mortgage rates. But it often comes without early repayment charges. With a regular tracker mortgage, you get a rate that's guaranteed for a few years, but you won't be able to pay it off early without paying fees. Getting a lifetime tracker means you can pay it off early and move to a better mortgage without paying fees for doing so.

To find the best lifetime tracker mortgage, use our comparison table above. It lets you compare every tracker rate mortgage available, including lifetime trackers.

What are the benefits of a tracker mortgage?

With a loan, tracker rates bring some advantages. Tracker mortgages have other benefits too. These include:

  • Low rates compared with other mortgages

  • Lower payments when the base rate is low, which it has been for many years now

  • The opportunity to switch to a different mortgage product without paying a fee to do so (check your lender's policy on this)

  • Making overpayments can be easy, depending on what kind of tracker mortgage you have.

What to watch out for with a tracker rate mortgage

The big thing to think about with a tracker mortgage is whether you could still afford the monthly repayments if the rates went up. Fluctuating mortgage repayments can make budgeting tricky.

If the base rate goes up, and you can't afford to make the repayments on your tracker mortgage, this could negatively affect your credit score.

Don't forget to check whether your mortgage has an interest rate floor. You'll want to make sure you can take advantage of low base rates.

And check whether you'd have to pay an early repayment fee if you wanted to get out of your mortgage before the term ends.

What causes my rate tracker mortgage to change?

With your tracker mortgage, base rate is what causes it to change. Most tracker mortgages follow the Bank of England's base rate.

When the economy's booming, the base rate goes up. If there's a recession, it goes down. The good thing about this is that if you've got a tracker mortgage, you'll pay less when the economy isn't doing so well, and more when it's flourishing.

On the first Thursday of every month, the Bank of England decides whether to change its base rate. In recent years, it hasn't changed many times.

The base rate has been less than 1% for over 10 years. It is currently at a record low of 0.1% since 19 March, reduced from 0.25% in order to combat the economic shock from the COVID-19 pandemic. That means tracker mortgage rates, UK wide, are low.

The difference between a variable mortgage and a tracker mortgage, explained

A tracker mortgage is directly linked to an external base rate, which it follows. There's an agreement that your tracker will remain an agreed percentage above that external rate. Your lender must follow the base rate it's tracking.

With a variable mortgage, your lender's free to set its own interest rates and it can change them whenever it chooses.

For these reasons, variable mortgages can be more expensive than tracker mortgages.

What's an interest rate floor?

With some tracker rate mortgages, you'll have an interest rate floor. That's when your interest rate won't go below a certain level, even if the base rate does. It's sometimes called an interest rate collar.

For example, your lender might set its interest rate floor at 1.9%. If the Bank base rate went down to 1.8%, your rate would stay at 1.9%.

Check if your mortgage has an interest rate collar before you decide if you want to go ahead.

How to find the best tracker mortgage

Use our table above to help you compare tracker mortgage rates. You can compare loan to value (how much of a loan you need in relation to the value of the property), rates, and overall costs. You can also check your eligibility for each loan.

You'll find all the best tracker mortgage deals included. Check out the Nationwide tracker mortgage and the Barclays mortgage tracker. Or see if the Halifax tracker mortgage or one of the other mortgages listed looks better for you.

Use the table to find the cheapest tracker mortgage or the best tracker mortgage for your needs.

Other types of mortgage interest rate

  • Variable interest rates can increase or decrease at any time because they're set by the lender, which can make budgeting tricky

  • Fixed interest rates will stay the same for a period of up to 10 years, depending on how long you fix for, but they can be hard to get out of

  • Discount interest rates can change at any time but stay a certain percentage less than the lender's SVR

  • Capped interest rates can be tracker, discount or variable, but they specify a maximum interest rate they definitely won't go above.

Here's how to work out which type of interest rate suits you best.

Tracker rate mortgage FAQs

Q

What happens when my tracker rate ends?

A

You will be moved to the lender's standard variable rate (SVR). This is likely to be higher, meaning you will pay more each month.

Q

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

A

Yes, but many lenders charge you if you repay or switch them before the tracker rate ends.

Q

What is the longest tracker rate available?

A

Some tracker mortgages last for the entire mortgage term, meaning they track the base rate until you pay it off.

Q

Will applying for a mortgage affect my credit rating?

A

Yes, every application for credit you make appears on your credit record, so avoid applying for too many. Here is how your credit history works.

About our mortgage comparison

Q

Who do we include in this comparison?

A

We include mortgages from every lender in the UK. They are all from lenders regulated by the Financial Conduct Authority. Here is more information about how our website works.

Q

How do we make money from our comparison?

A

We have commercial agreements with some of the companies in this comparison and get paid commission if we help you take out one of their products or services. Find out more here.
You do not pay any extra and the deal you get is not affected.

Last updated: 14 September, 2020