Our Guide to Tracker Mortgages


Tracker mortgages are types of mortgages that are linked to interest rates, and have been a popular topic in the news recently. Many homeowners and those looking for a mortgage will want to know whether a tracker mortgage is best for them – we’ll explain how they work.

What are tracker mortgages?

A tracker mortgage is a type of variable rate mortgage where the interest you pay is linked to The Bank of England’s base rate. 

If you get a tracker mortgage, your mortgage repayments could change every month, including the interest you pay on your mortgage. 

What is the difference between a tracker mortgage and a fixed rate mortgage?

Where tracker mortgages can change monthly, fixed rate mortgages don’t change for at least a short pre-agreed term. Fixed-rate mortgages offer a good value rate for a limited time, meaning that if you need to budget and want to know exactly how much you’ll be paying each month, they’re ideal. 

With fixed rate mortgages, your repayment rates won’t go up throughout the mortgage lifespan, no matter how high rates go. 

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

If you have a variable mortgage, a mortgage lender can set their own variable rate, whereas a tracker mortgage normally follows the Bank of England’s base rate which isn’t controlled by the lender.

How do tracker mortgages and interest rates work

The interest rate on a tracker mortgage changes with the Bank of England’s base rate, which inevitably affects how much your monthly repayments will be. 

This means when, for example, the Bank of England’s base rate falls, so does the interest you’ll pay on your mortgage. This means you will have lower monthly repayments, allowing you to free up some of your budget. 

However, if the base rate rises, your mortgage interest rates will rise too and your monthly payments will go up. 

What is an interest-rate collar?

Some lenders apply what is known as an interest-rate collar to your tracker mortgage – this means that your interest rates won’t fall below a certain level, even if the base rate does. 

If your lender sets a collar at 2.5% and the external interest rate goes down to 2%, you will still pay the 2.5% interest rate on your mortgage. Not all tracker mortgages have interest-rate collars, but you should make sure you know what terms you’re agreeing to before you choose a mortgage deal. 

How are mortgage tracker rates set?

Tracker mortgages generally follow the Bank of England’s base rate with a set margin on top. What percentage you pay over the base rate is determined by the individual bank or building society you took the mortgage out with. 

The margin varies amongst lenders and is based on factors such as:

  • Competition;
  • Market conditions;
  • The lender’s funding costs. 

How often will a tracker mortgage change?

The Bank of England Monetary Policy Committee (MPC) meets 8 times per year to set the base rate. However, they can have additional meetings if they feel necessary. This means your interest rate and repayments could change up to 8 times per year or more if additional meetings are held.  

Staying up to date with UK financial news can help you plan ahead. The base rate usually increases when inflation is high. Our guide on the effects of inflation on mortgages may help you to understand this process better.

How long do tracker mortgage deals last?

You can find tracker mortgage deals that last for 2, 3, 5 or 10 years. When the tracker mortgage deal comes to an end, you will usually be moved to your lender’s standard variable rate. 

This is a good time to remortgage and look for another fixed-rate deal, either with your same lender or a new one. 

How long can you get a tracker mortgage for?

As we’ve mentioned, you can get a tracker mortgage anywhere from 2 to 10 years. Once the tracker mortgage comes to an end, you can look at remortgaging and finding another fixed-rate deal. 

Lenders will usually offer an introductory rate, which can be applied for the first one to five years. Some lenders, such as Halifax, will offer you a lifetime deal in which you can choose to stay on track with the Bank of England for your whole mortgage term. 

Pros and cons of a tracker mortgage

Some advantages of tracker mortgages include:

  • Lower interest rates at the beginning of the deal compared to fixed rate deals.
  • There is more certainty than other variable rates due to rates following an external indicator.
  • If the financial indicator falls, you’ll benefit from lower repayments.
  • Some lenders allow unlimited overpayments. 
  • Some lenders can allow you to switch to a fixed-rate mortgage for free if the base rate rises.
  • If you find a deal with a cap, you’ll benefit from your interest rates not rising above a certain level.

Some disadvantages of tracker mortgages include:

  • The rate can change several times a year, meaning your repayments could change drastically and become unaffordable.
  • You have to be prepared in case your rate increases, meaning it is harder to budget monthly for than fixed-rate mortgages.
  • You may have to pay early repayment charges to leave a deal before it ends.
  • If your mortgage deal has a floor, your interest rate can’t fall below a certain level, so you may not benefit when the base rate falls below a certain level.

If you’re looking for more details on the pros and cons of tracker mortgages, our dedicated guide offers more in-depth information.

How do you know if a tracker mortgage is the best option for you?

If you don’t know if a tracker mortgage is right for you, the experts at Go2Mortgage can help you answer this question. 

However, it ultimately depends on what you want from your mortgage. A tracker mortgage may be a good option for those with a more flexible budget.

FAQs about Tracker Mortgages

What happens when a tracker mortgage ends?

When a tracker mortgage ends, you will usually be moved to the lender’s fixed-variable rate. 

When this happens, you could possibly look for a fixed-rate deal which works for you. If this is the case, you may not need to find a new mortgage provider since your original lender may also have some fixed-rate products suitable for you. 

Can you get a tracker mortgage as a first-time buyer?

Yes, first-time buyers can get a tracker mortgage. A tracker mortgage may be a good idea if rates are low, but it might be wise to find a deal with a cap if you’re not sure you could afford the higher payments should the rates increase. 

Can you get a joint tracker mortgage?

Yes, you can get a joint tracker mortgage and they are a valid solution if you plan on taking out a mortgage with someone else, such as a partner or friend. 

Keep in mind that when you apply for a joint tracker mortgage, just like any other joint mortgage, both parties are responsible for the loan.

About the author 

Gary Oxborough

Gary is the Founder and Director of Barlow Irvin Financial Services Ltd. He has been in the Finance industry for over 20 years and has specialised in Mortgages since 2003. As well as running the firm, he is still actively involved in advising clients.

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